Debt – coaxing the monster out from under the bed

A friend of mine tells colourful stories of how, when she was a young, the family would make the five-hour trek up North to visit their grandmother, Ouma Mags. She was a fiercely independent woman and, to a child, Ouma seemed invincible and her strange universe was both scary and magical.

Ouma to the rescue

It was a sweltering, sub-tropical night. My friend and her brother was put to bed on a narrow single bed that stood next to their grandmother’s. The room was dark and the sheets were soft. Suddenly there were… noises … Scratching. Things falling. The bed bumping. Low moaning… Ouma Mags had disappeared! All that remained were her teeth in a glass of water next to her bed.

The siblings lay there for what seemed like hours, shivering. The one was trying to convince the other to peek under the bed and then, when it all became too much, the youngest started to wail. Suddenly there was a flash of light! Ouma Mags stood in the doorway, broom in hand, ready to strike down any enemy.

She slowly approached the bed and knelt down with a torch. Two glowing eyes blinked back at the beam of light. It turned out to be a black and white stray cat that had jumped through the window and made a nest under the bed.

The next morning, quite inexplicably, there were six tiny kittens to admire.

Monsters aren’t real, but yet we fear them

What does this have to do with money? Everything! Only, we call our monsters the Sheriffs of the Court.

As a Financial Advisor, I can sense the palpable fear and desperation when some come to see me for the first time. It takes courage to come and, like the dentist, I am avoided until the pain of debt and fear of financial ruin become too much.

Financial Monsters don’t turn up unannounced

You may not want to admit it to yourself or others, but deep down you knew they were coming for you. Remember those registered letters you did not open? Those calls you never took? The time you drove around the block when you saw a car you did not recognise in front of your house?
But as your trusty Financial Advisor, I am here and I have a torch. There are things we can do to mitigate your financial mess. However, it is a lot easier if you make that call earlier rather than later!

How to tame a monster

Take a deep breath and know there is always hope. Financial institutions and debtors are more likely to listen if you take responsibility, alert them when your circumstances change and negotiate a payment plan. Everybody knows life happens. Nobody wants to lose money. These businesses know that bad debt not only affects you, it also hurts their business.

1) You may be right – it may be your father’s fault

Humans are creatures who mimic what they see and hear. Awareness is key, otherwise the sins of the fathers will be passed on to the children. Apart from fixing the financial problems in the here and now, it is important to identify the examples you were shown and the messages you received about money when you were growing up and to question how these have served you.

A Financial Advisor is not a therapist! However, responsible Financial Advisors will not only sell you another product, refinance your mortgage or be ready to cash in a policy to get you out of a crisis, but will explain your options, the risks and consequences involved, how these can be mitigated and how to prevent the need for such an intervention in future. The focus should be on increasing your financial literacy, so that you can take control of your destiny and take back your power.

2) Interest and penalties hurt more than you realise

It is, unfortunately true that your new car started losing value the minute you drove it out from under the red bow on the dealership floor. You still have to pay for it though and, even when the novelty has worn off, the music system stills sounds amazing in traffic.

The seasons might have changed unexpectedly and now you have competing priorities in terms of stretching your budget. So you missed out on a payment. Soon, you have missed four instalments. It seems impossible to catch up as hundreds of Rands have been added to your account in terms of penalties, which adds to the interest you are already paying on your car.

Talk to the monsters under your bed, instead of lying awake at night, trying to ignore them. They do not bite – as much as you might anticipate! Speak to the company that had given you the loan. They do not want to repossess your car. But tread lightly. Refinancing is both a lifeline and a sentence to greater debt in the long run.

3) Making debt to pay debt is a trap

There is truth in the dictum ‘live within your means’. There is a reason why offers of micro or payday loans flood social media so incessantly. Ease of access to credit casts a long and insidious shadow – if you were short this month you will be very short next month and then some!

These loans come with high interest rates and you have to pay these immediately or within a very short period of time. This means that you may have to take out yet another short-term loan to cover the down payments and so the cycle repeats whilst you spiral further into debt.

Rather negotiate with your debtors or consider entering into a debt review programme if you are sinking. What happens during such a process? Your situation will be reviewed to establish if you are overindebted. If this is confirmed, the consultant will contact all your debtors to inform them that you have entered such a process and get them to sign an agreement which will be taken to court and then becomes binding on all parties.

This means that whilst no-one can chase you, you can also not make any more debt until the final amounts are settled. This process can take up to five years. On the plus side, some interest may be forgiven and the overall interest rate lowered. Your payments will be reduced. In other words, the monsters will lose their teeth and you can sleep more soundly.

4) Good (and bad habits) develop over time

Have you ever wondered how it is that some people who come into the world already at a disadvantage seem to have the supernatural ability to come out ahead? It might have happened (but it’s rarely the case) that they had won the lotto. More likely it has to do with determination, careful planning and a commitment to themselves and their families.

It is okay if you don’t have a clue as to where to begin and it is never too late. A good Financial Advisor will explain the different options available to you and help you formulate a plan that will set you on the path to financial freedom and wealth creation.

5) Planning for the worst should start when the going is good

I advise all my clients to build up an emergency fund. The minimum balance should be enough to cover all your monthly living expenses for three months. There is a saying that if you are unemployed for three months, you will lose your house. This does not have to be true. Communication is key.

Financial freedom means that you do not need to spend all your time and effort dodging dragons and out-manoeuvring monsters. It means that you can invest your energy and money in that which matters to you. Remember, I am here and I have a torch.

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