Sam Dunn: Easy credit that drove a young Briton into exile
Sunday 13 March 2005
Here's a rum tale of eye-popping debts, a noble but lost cause and eventual escape overseas.
Here's a rum tale of eye-popping debts, a noble but lost cause and eventual escape overseas.
However, it's no historical yarn but a thoroughly modern narrative, set in credit-mad Britain. And sadly, it embodies a very 21st-century approach to money.
Peter (most definitely not his real name for fear of imperilling his new job) is a 27-year-old teacher working in central London, but not for much longer. I met him recently at a party when an inebriated conversation suddenly turned rather sober as he told of his imminent move to the Middle East.
Although he would be leaving behind friends and family, a teaching post in Kuwait was his only chance of ever being able to get back on a sound financial footing, he said.
The job would offer a slightly higher salary than in the UK but, crucially, the money would be paid to him tax-free. Even better, he would have no accommodation costs, since he was to be put up on the school premises.
The cash he saved each month would then let him make inroads into a £22,000 debt mountain, built up partly through an overdraft and a small, unsecured personal loan - but mainly amassed on credit cards. On top of this, he also owed money to his parents.
The £22,000 Peter owed wasn't just the result of a desire for the latest consumer goods and a jolly lifestyle. An aborted academic course and the associated year-long living expenses also lay behind his financial problems.
He asked me what I thought of his plan to repay his debts, which was certainly a bold one. It was clearly a far better idea than bankruptcy, an option increasingly considered by young people as a way out of debt, but one that does long-term damage to personal credit ratings.
Peter had already done the sensible thing by visiting the Consumer Credit Counselling Service (CCCS) to explore the possibility of setting up a debt-repayment plan. This would have involved paying a set portion of his monthly income to all his different creditors to gradually clear what he owed.
He decided against this because he felt it would take forever to make any real impact on his debts.
His parents had generously offered to clear all his debts for him in one fell swoop. But Peter felt enormous guilt at once more becoming a drain on their finances, especially since they were both retired.
So, with no prospect of a sufficiently large pay rise if he stayed at his current school (he is already a head of year) and unwilling to leave behind a profession about which he cares passionately, he had been forced to find a radical solution. His departure for Kuwait is now barely four months away.
Although £22,000 is an almighty sum to owe, it is not uncommon: as a nation, our total credit card debt is heading for £60bn.
Peter says his own problems stemmed largely from making expensive purchases on his credit cards, but repaying just the minimum sum each month.
Lenders used to ask for 5 per cent a month but, in many cases, they will now settle for as little as 2 per cent.
One of Peter's purchases alone was for £3,500. The 0 per cent introductory deal on his credit card had expired before he could transfer the balance to another such offer, and the debt was now costing him a packet.
The trouble with minimum repayments is that, by prolonging the time taken to pay back what you owe, you breathe life into your financial difficulties rather than killing them off.
Combine this situation with the easy availability of credit - Peter had no difficulty taking out more than five cards - and it is not surprising that his personal debt mountain took only five years to build up.
Ultimately, we all bear responsibility for our finances, as Peter has admirably demonstrated in his determination to sort out his problems. MPs, parliamentary committees and consumer bodies all do a terrific job in trying to hold big banks and lenders to account, but in the end it's down to us to get a grip on what we owe and spend.
This is no sermon - just a cautionary tale of how serious debt can pull your life out of shape. We'd do well to heed it.
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