Get ready to rumble

IT’S official: we’re a bunch of financial fatties. This week it was revealed that Australian households have the world’s biggest level of debt.

How to go toe-to-toe with the banks.

IT’S official: we’re a bunch of financial fatties.

This week it was revealed that Australian households have the world’s biggest level of debt.

That’s according to research from Barclays bank, which found that Aussie household debt stands at a whopping 130 per cent of GDP — a figure I’m guessing means absolutely nothing to you.

So let’s stand us next to the rest of the advanced world: on average they’re a much slimmer 78 per cent of GDP, and over recent years, while they’ve been dieting down on their debts, we’ve been lapping up the leverage.

Here’s the thing. When you’re physically out of shape you can’t hide it — your muffin top is on show for everyone to see.

Yet with debt it’s completely the opposite: often the brokest people look the wealthiest.

It’s different for me though: I get to see people in the money-nuddy. I’m the financial equivalent of Jenny Craig — people email me and let it all hang out.

All jokes aside, the facts speak for themselves. There are plenty of good people who have made bad decisions, and are living in their own private hell. Let’s meet one of them.

DESPERATE TIMES CALL FOR DESPERATE MEASURES

Dear Scott,

When my husband was young, single and in the mines (during the boom time in WA), he racked up approximately $32,000 in debt (credit cards, and personal loans including a GE loan at 22.74 per cent). I came into the relationship debt free, and with some Mojo.

Now my husband has injured himself and is laid off work for at least the next several months, and we don’t have any income protection. We are struggling to pay $355 a fortnight on three different loans, plus rent and childcare of $980, on an income of $1350.

We’re desperate. Please help.

Louise

Hi Louise,

I’m picking up on your anger. I’m sure your hubby is too. Think of it from his perspective: he’s out of work. He’s injured. He’s in debt. And his wife isn’t buttering his bread.

The problem is that when you mix in his inability to work, his self-confidence is probably shot, which will affect his ability to get on top of this situation.

That’s why it’s really important that you frame this as his shot at redemption: he gets to go toe-to-toe with the banks and fight for his family.

I’ll give you the exact steps to how he can win for you.

You’re in a financial firefight, so your first priority is to look after your troops — not the bank.

You need to cover the bare essentials: rent, food, utilities, transport and childcare.

Be realistic about how much it costs you to live. Anything left over should go towards paying your debts.

So that’s your first job: write down your plan. You’re creating a debt plan for you, and your creditors.

Your second job is to go to each of your lenders’ websites and search for their “hardship policy”, which will outline the procedure for applying to vary the terms and conditions of your loan agreement.

Most banks have a hotline set up. Don’t call it.

Instead, put your application in writing and attach your debt plan, realistically showing how much you can repay. This is not the time to feel guilty — do not overcommit yourself.

Third, write a cover note that explains that your circumstances have changed, and that you need your payments either temporarily stopped or at least reduced for a set period.

Ask for as much leeway as you can, while committing to as little as you can.

Here’s you: “The banks will never accept this.”

Here’s me: “They do it every day of the week.”

Because they’re kind-hearted, good corporate citizens?

No. Because the law (and their greed) makes them. Let’s see how it works.

Now I’m assuming that your debts are “unsecured”.

That will work in your favour, because your bank won’t have recourse to any of your assets. And if you were to go bankrupt, the bank would have to stand behind any secured creditors and fight for the scraps.

So the bank has a few options on how to deal with you: it could issue legal proceedings and try and get blood from a stone.

Or it could sell your debt to a debt collector for less than 50c on the dollar. Both of these options are expensive for the bank.

But there is another option.

Remember, the nice thing about the banks is that they may be cutthroat bastards but they’re predictable — they always act in their best interests. And invariably, what’s in their best interests is to work with you to get their money back, even if it takes a while.

There are some people that would encourage you to go bankrupt — it’s sold as an easy option, and to be truthful if you don’t earn much, and have very few assets, it can be.

But there’s a real danger in taking the easy way out: it softens you up to do the same the next time.

Yet over the course of my career I’ve met plenty of people who have fought their way back from situations like yours. They have a confidence about them that comes from (painfully) paying down their debts. And I’ve seen some of them go on to build serious wealth.

It may take you a few years of hard work once your husband gets back on his feet. But it’s not forever.

The final siren has not sounded. You’re not even at quarter time. The game is yours for the taking, if you work as a team.

Tread Your Own Path!

Originally published as Get ready to rumble