How was your weekend?
I had an extremely interesting weekend speaking to a young gentleman who was working to clear his backlog of debt. The debt was £6,000 and he was in a debt management plan. He had been repaying £150 to his debt each month and was extremely pleased to be repaying his debt.
We got onto the subject of debt when he cracked a joke, “I’ve got 99 problems and a debt IS one”. I’m led to believe a Mr Z, first name Jay, wrote this song. I by-passed this subject for fear he was carrying a concealed weapon. In case you can’t tell, i’m joking.
Actually, he was an enjoyable and interesting character and his debt problem was something I knew I had in common with him.
Debt Problems
The man’s name was Jeff and he was younger than me, around 30 I would presume. We were at a friend’s party and out of nowhere the conversation turned to debt. It’s a strange situation being knowledgeable about a subject you really wish you had never experienced, but it led to an interesting social experiment.
When the young man said he had unsecured debt of £6,000 and was in a debt management plan, I like many, were taken back. Not because he was in debt, but because he was openly discussing his debt problem.
Is debt becoming more socially accepted?
In any event, it got a lot more people commenting, “Yeah, tell me about it” or “When I get out of debt I’ll never borrow again”. Suddenly everybody was comfortable talking about their debt problem. I piped up to discuss my own experiences or debt and that there were lots of ways out of debt.
The Truth About Clearing Debts
Interestingly I managed to help Jeff with his debt over the weekend. He was already in a debt management plan and paying £150. His contractual payments were £250 per month but the debt management company were happy to take £150. I asked Jeff how long he had been in is debt management plan and he said “3 years”. I said, “Great, you must be almost debt free!”.
But Jeff seemed confused.
He asked what would give me that idea? So I told him. £150 for 36 months would be £5,400. So, technically his debt should be £600. But Jeff said, it was nowhere near that.
I couldn’t understand, until it hit me. A debt management plan is only efficient if the interest and charges are frozen. Jeff believed he still owed at least half of the debt, if not more. He also said that he wasn’t in a free debt management plan, but instead, he had choose a company that charged fees of 20% each month.
The companies fees for 3 years were £1,080 and some of the interest and charges had not been frozen, so the debt will continue to climb. I gave Jeff the number of some free debt charities who could help.
The Right Debt Solution
Jeff was a prime example of the right debt solution, implemented in correctly. You can’t legislate for creditors freezing interest and charges in an informal debt solution. However, Jeff could have repaid at least £1,080 more towards his debt had the company not been charging a fee.
A debt management plan isn’t the same solution for everybody so the message here is to check frequently that the debt is going down at the appropriate rate. If the monthly payment towards a debt management plan is being made but the debt is increasing then it’s time to stop the solution and ask what’s going wrong. If creditors won’t freeze interest and charges then paying a monthly payment towards debt won’t help; the debt will continue to increase and nothing will change. In this instance, professional debt advice from a charity should always be sought.
John The Bankruptcy Guy
As an ex-bankrupt, John has experienced the highs and lows of credit. It's with this knowledge that he writes Debt Advice Resource - to help others avoid, or navigate out of, the pitfalls of debt.
Follow Me:
