Thu | Jan 17, 2019

Oran Hall | Bad-debt predicament

Published:Sunday | January 13, 2019 | 12:00 AM

Question:

I am in bad debt on two angles. I have an outstanding credit card debt, and I also have a bad debt, with a company in the micro finance sector. The latter was a loan I stupidly took for my boyfriend at the time, and he has made no payment towards it, and because it really was not my loan, I made the decision not to pay it.

You can see the predicament I am in now. I am in a stable job. It does not pay a lot, but it is reliable. I need help on how to fix my debt in the shortest possible time. Do you think it would be wise to take a debt consolidation loan? Do you know if that financial institution offers any loan amnesty?

- Stacey

Personal Adviser:

Many are in financial trouble due to ignorance. Others are in trouble due to lack of wisdom. Whatever the reason, money borrowed is money to be repaid, and one stark reality is that a debt that is not repaid gets bigger over time.

Failure to manage debt effectively can potentially cause irreparable harm. Consider, for example, the harm that can be caused to your credit score for a long time into the future, the extent to which it can impair your ability to borrow in the future, and your ability to borrow at a manageable rate if you do succeed in getting a loan.

Although you did not say to what extent the credit card contributed to your troubles, credit cards should be shunned as much as possible. They are very convenient, but they cause inconvenient consequences. The interest charges are high, and the way in which interest is computed and how payments are applied can result in your principal balance remaining high although you are making regular but not full payments.

I find it interesting that you incurred a debt for your "boyfriend at the time". I like the apt way you describe him. Clearly, he did not, and does not, see the debt as his responsibility. This is a very expensive way to learn how risky it is to borrow money for another person. In fact, it is risky just to be a guarantor for somebody else's loan. It is so hard to know who to trust.

I find it puzzling that you opted not to service the debt because you decided that the loan was not yours. It is true that you were not the beneficiary, but do you really believe the lending institution cared that you borrowed the money for a third party? As far as they were, and are, concerned, you are the borrower. I bet you did not tell the loans officer that you were borrowing the money for your "boyfriend at the time".

 

Lesson learnt

 

One lesson from your experience is that kind people like you should not borrow money for people who do not want the responsibility of servicing a debt or people who may be willing to do so but do not have the capacity to do so.

On the positive side, you have a job. It does not pay well, but you have a stable, reliable source of income. Are you prepared to make the required sacrifices to begin the repair job? Are you willing to make a budget with debt repayment as the priority item? Have you discarded the credit card?

I wish I could tell you how to get your ex to be a man.

The next step, make contact with the lenders. When you have discussions with them, do your best to arrive at terms that are manageable. Most important of all, honour the new commitments. That is the first step in restoring your name.

Debt consolidation is one course to take in cases in which there are multiple loans and there is a problem although the process carries some costs. This creates breathing space as it generally leads to lower monthly payments over a longer term, but those monthly payments must be made, and you would have to first establish that you are able to make the required payments.

The amnesty question is an interesting one, but I doubt that lending institutions consider amnesties as part of their business. Perhaps you could call them and ask the question. You do not have to identify yourself.

- Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email finviser.jm@gmail.com