The following is a guest post from fellow UK blogger Sara at Debt Camel. If you’re interested in guest posting on A Disease Called Debt, please contact me.
“My diagnosis is that you have a nasty case of debt” says your financial advisor, “And if you don’t take this prescription I am writing, you might have to have your assets amputated.”
Ouch! But though that is meant to raise a smile, actually debt is in many ways like a disease, and thinking about the “symptoms” and what you have to do to “cure it” is a useful approach.
How do you “catch debt”?
- It can be infectious – you can pick it up from your mates at work who go out for drinks too often and hand over a credit card.
- You could have got a dose from your ex who waltzed off leaving you with the loans and bills – perhaps that is an STI!
- Redundancy or reduced hours might have hit your finances like a car crash.
- With weight gain, you put on a few pounds, then take less exercise and the weight gain gets faster. With debt you pile on the pounds on your credit card and interest keeps being added.
Early diagnosis helps
Debt problems, like illnesses, are usually easier to treat if they are diagnosed early, the treatments are less unpleasant and have fewer side-effects. There are 5 main “treatments” for the disease of debt, which is appropriate depends on how serious the problem is. People who ignore the early warning signs of debt can end up with a more difficult financial situation with no easy options left.
The symptoms and treatment for an early stage debt problem
Early symptoms of debts that should be tackled include:
- You never seem to have anything left at the end of the month
- You are only paying the minimum on your credit cards and the balances are rising
- You are thinking of asking your bank for a larger overdraft
At this point your credit rating may still be fine and you can borrow more so the situation may not seem urgent. But if you do, your situation will just get worse. Hayley has written a great description of how she made the decision to stop giving in to debt: moving from “Thinking about the debts every day became normal for us, but not in a good way” to realising that she could make real progress to tackle the debts.
If you get to this decision early enough, then you can still make the minimum payments on your debts and the best treatment is snowballing: by overpaying the debt with the highest interest rate and paying the minimums to the other debts, you clear your debts as fast as possible.
Symptoms and treatments for a late-stage debt problem
If you have one or more of these late-stage symptoms, you have a looming debt crisis:
- You can’t afford the minimum monthly repayments
- You could manage if only you could get a consolidation loan, but you are being turned down
- You are scared to tell your partner how bad things are
- You can’t sleep at night for worry, you may even have unopened letters that you think are bills
If you could repay your debts if it wasn’t for the interest that is being added, then the best “treatment” is probably a Debt Management Plan. Here you ask your creditors to accept a lower payment and freeze interest. You can either do a “DIY” version, writing to your creditors yourself, or go through a DMP company (one of the best ones is StepChange who are a charity). This “treatment” has one unpleasant side-effect: it harms your credit rating, but all late-stage debt solutions have this problem.
If you don’t think a DMP will help, then there are three other “treatments”: a DRO, an IVA or bankruptcy. These are all types of insolvency. They may not be nice, but one of them will work for you. Debt is always curable.
What about a better diet and more exercise?
Good idea! They won’t cure your disease directly but they will put your body in a better shape to fight off the infection. And they have a direct equivalent for debt: earn more and spend less. If you can do these then your debt disease will be cured faster. And best of all, if you can improve your finances, you will be in a better shape after debt so you can be certain that your debt disease isn’t going to return.
Author Biography: Sara Williams has been a CAB adviser since 2001. She runs a debt advice website (Debt Camel), blogs about personal finance and is Web Administrator for ScienceGrrl. She has 2 children and a spaniel.
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Image from Wikipedia.