credit and debt
getting out of debt Amy’s way
WSA adsense code -->You never know when you’re going to have an interesting conversation.
Last weekend I was staying with some friends by the seaside, and whilst we were out I ended up chatting to one of the group, Amy, about my house - which I bought last year. She stated that she was rubbish with money, to the extent that a few years ago, she’d been made bankrupt.
The details of the story are that she ran up £25k of credit card debt in her very early twenties, whilst earning a salary of something like £15k. After talking to a friend who’d been through bankruptcy she decided it was the best option for her, went to court and was made bankrupt. She was put on a payment plan of £100 per month for three years - this was the spare money that she had after basic expenses and could afford to repay to her creditors.
I admired her frankness, although I was then stuck with what to say. I told the truth, which is that I think there is nothing wrong with being made bankrupt - for businesses it’s a cost of providing credit which they should be allowing for. She said that although she’s now eligible for credit she no longer takes it up, and whilst she’s still perpetually skint (not a well-paid job, living in an expensive area), she’s debt-free.
I don’t know whether I conveyed my admiration well enough. I made (for me) the mistake of saying “it’s ok if you don’t do it every year”. I know that she’s right. Bankruptcy isn’t for everyone, but for some people it’s the best way to relieve their debts. It would have been for her as she couldn’t have even payed the interest on £25k, and she had little immediate prospect of a better paid job. Once bankruptcy has been discharged, you can carry on your successful life, hopefully a little wiser for the experience.
If I knew someone in real life who was facing massive debt I’d probably try to put them in touch with her. There’s nothing like hearing personal experience to try to reassure them that there is life after crippling debt, and that bankruptcy isn’t an insurmountable obstacle in the quest for a happy, fulfilled, and eventually rich life.
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8 comments for “getting out of debt Amy’s way”
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At least she got out and is staying out. A lot of people go back to their old habits of spending. Anyone living within their means is doing a good job. Good luck to her.
I’ve always thought it was a cop out to go bankrupt, but I guess that’s easy for me to say as I’ve never been in that situation. Fair play if she’d learned her lesson - I suspect many people don’t though.
It’s not a cop out if you will never be able to repay your debt (due to the dark side of compound interest), it’s the only practical solution.
I actually think many/most people learn more about personal finance as a bankrupt, because they are forced to live within their means. And of course many bankruptcies aren’t for personal debt, but for business debt.
Completely disagree. She decided to spend that much money, presumably enjoying all sorts of purchases that other people living within their means couldn’t afford, so she should pay for it just like the rest of us. Why should every other consumer pay more to businesses that have allowed for the cost of providing credit? Is it fine to stay on the same insurance premium as everyone else if you drive like a fool and claim on insurance a few times? Can I have 25k off my mortgage if I buy a house that’s too expensive and have the “guts” to fess up? I would learn lots of lessons on that sort of pay. It is certainly nothing to be admired.
I suspect that with the interest, and the late fees and so on, she paid considerably more than she ever borrowed in the first place, and that every single one of her creditors made a gross profit on their transactions with her.
Additionally, with only £100 a month available to make debt repayments, she was arithmetically unable to repay the debt. The only alternative that she had to declaring herself bankrupt was to be forced to declare bankruptcy within a year or two by her creditors.
Once the debt is there, you have to work from that point. Unless you’ve got a time machine in your back garden of course
Wow! I don’t have any friends that have ever been that frank with me about money.