Did you know that in the frigid waters surrounding Britain 55% of drownings occur within 10 feet of safety? Perhaps more surprising is that 66% of those who die through drowning would be considered good swimmers.
This tells us how easy it is, even for the strongest swimmers to get out of their depth and rapidly become helpless. Typically, when someone realises that they cannot keep their head above water, they tend to panic. A drowning person has little or no control over their actions. They experience what is called an Instinctive Drowning Response; when this sets in (and it comes on very quickly indeed) the drowning person cannot stop drowning or perform voluntary movements to help them survive.
Unmanageable credit can have the same effect. People who think they have a strong hold over their finances can find that it doesn’t take much to be out of their depth. Bereavement and divorce are obviously players in turning financial circumstances critical, as is a long term illness or a period of unemployment. But there can be other factors, often that don’t appear significant at the time, that can make a tight budget impossible to maintain.
For Rosie* the tipping point came with the illness and death of her mother. The household income was already overstretched, the need to fund considerable travel expenses and ultimately the cost of the funeral had resulted in credit cards, HP and mail order debts of around £8000. The family were under considerable stress and desperate for a holiday but this seemed impossible.
Debt counselling was not the answer, Rosie had a good credit rating and did not want to lose this by asking to reduce payments or freeze the interest; however over 25% of her monthly salary was going towards credit repayments:
Credit Card (41% Apr) – £250 Mail Order (40% Apr) – £120 Credit Sale (29.9% Apr) – £66 Overdraft Fees (N/A) – £40 TOTAL – £476 Chance of a Holiday – Nil
Ironically while keeping up the payments was causing severe hardship they were having little impact on the overall debt – in the case of the mail order account the payment of £120 reduced the balance by a mere £30 per month, it would take over 5 years and £6600 to clear this one account.
Rosie approached the credit union for help to clear some of the balance of her credit card with perhaps a small advance towards a holiday but after discussion with her it was clear that her situation called for more direct action. Churches’ Mutual agreed to lend Rosie £9000 over four years with repayments of £272 per month, recognising the family’s need for a holiday. This freed up £200 per month to finance the kind of household expenditure, clothing and travel, which had been previously facilitated through credit.
Consolidation loans are not always the answer but to take action before the situation becomes critical is essential. If you think you may be in too deep, speak to us at the credit union, we may be able to help you before the waters close over your head.