Like many frugalists I am in debt…. It kind of throws the idea of being thrifty on it’s head and in many ways may make my frugal website seem less trustworthy…. However admitting my debt to you guys and girls will hopefully give you a glimpse into what drives me to keep living modestly and also what I am doing to ensure my future is not paved with the hell of debt forever.
Why Am I in Debt?
I won’t go into too much detail here but like many I lent a large sum of cash to some close people. This was borrowed in the form of loans and later credit cards I was expecting the payments for these to be made by the other people whom I was helping but the payments never came and I was legally stuck with the debt. During the first year or so of this I ignored the debt and just used credit cards to make the payments, expecting that the people who had borrowed the cash would start payment at any time soon and I could get back on the straight and narrow…… The payments never came and my financial situation meant that I ended up paying payments with CC’s and interest started to accumulate. 5 years or so on and through a spiraling pile of interest the debt has literally doubled. No doubt somewhere along the way I have added some of my own debt but essentially I have been living with the sick feeling that I owe a lot of cash that I never spent.
So what I am doing about my debt?
Late last year I cracked. I decided I would no longer hide behind the fact that I never spent the money and ignore the problem, something had to be done. By admitting to myself that this was now my debt and it’s very likely I will never get paid back it was an admission that this was my issue. My debt is in the UK so I searched around for the UK charity that helps people through debt and gave them a call. National Debtline were absolutely fantastic, they talked me through all my options and gave me example scenarios to help me make the decision about the best path for me to take. As far as I know these paths are pretty much the same for the United States and most parts of Europe. First option is self debt management, their website and helpline provides help along the way and sample letters to help you get every step right when contacting and dealing with creditors. Secondly there is a debt management plan. National Debtline has affiliation with two companies that will manage your debt problem absolutely cost free to you. They do make money but not from you. Thirdly you have IVA. Individual Voluntary Arrangements involve creating settlements and payments with your creditors for less than the debt owed. Lastly there is the dreaded Bankruptcy. However when explained this option is hardly as bad as the stigma attached and may only result in one year of hardship and stringent eyes watching over your accounts. I opted to go for the Debt Management Plan.
More About The Debt Management Plan
For my personal situation the debt management plan seemed like the best place to start. Requirements were basically that I had more than 3 people that i owed cash too, I had more than #100 spare to pay towards debt per month and that I had over £10,000 of debt. Luckily for me all my creditors are unsecured so the process here is slightly simplified. After it was determined that I was eligible I was sent a 14 page application pack. This pack basically asked for details of all debts and a personal budget sheet to determine how much could be paid to each creditor so that everyone was treated fairly. I also created a brand new bank account unaffiliated in any way with any of the people I owe money too. This ensures that extra payments are not taken against my will in the future. Then I wrote to each creditor explaining my situation and that I was seeking professional help. The base letter was supplied by National Debtline and is done to ensure all parties are informed and treated fairly. So now my application has been passed onto one of the affiliated companies. From this stage they will contact all creditors to inform them they are now dealing with my finances and hopefully they will deal with them from here on in. All debts should be frozen of interest and monthly payments will be set up that will be paid to the debt management company and then forwarded onto each creditor. If any of the creditors decide to take the matter to court then the company will help make sure that the judge rule in your favour. Apparently it’s extremely rare that you will lose against an unsecured debt case if you have followed correct procedure. One of the credit card companies has been hassling my my Mother as this is my holding address in the UK, however asides from this the process has been fairly hassle free up until now. Hopefully within the next month the plan will all be officially set up and I will be paying a low monthly payment to slowly pay off my debts, interest free. I will be paying for many years but at least it will not grow and if my financial situation changes I can wipe them out.
How Do I Feel About The Debt And The Resolution That I Am Following?
Unless you can detach from the idea of debt and rationize that it just numbers inside the big corporate machine then debt is an awful feeling. I hate the idea that my debt has come to this but the fact that i am doing something is extremely liberating and I have learned some serious life lessons. Never lend money if you can’t afford to lose it! Don’t ignore debt. Avoid borrowing on credit cards as the contracts are useless. You basically sign to say that they can change your interest (as they have with me) whenever they feel like it.
Life After Debt
I will likely be paying around £110 ($180) per month to the creditors from now on, but it feels very much like I am out of debt, however my life is different now and in some ways the debt has taught me something that will stay with me for my whole life. Living a less impactful and frugal life is a nice feeling. With less expenditure there is less pressure to earn the big bucks so you can kick back and relax a little more. I don’t eat Ramen noodles for breakfast, dinner and tea and I do makes sure I do nice things. In fact as I write this post I am on a train from Cairo to Alexandria…. of course I am riding 2nd class to save cash and will be staying in a very low budget hotel overnight. This trip will cost me very little money compared to how I would have done it 5 years ago but I will likely have a better time and come out of it much less stressed. My frugality and simple living will continue to play a large part in my life, I hope, no matter how well off I become. Debt can really be one of the best things that ever happens to you. Just don’t ignore it like I did and do something about it NOW. if you want me to write about anymore aspects of this in more detail or have any questions then don’t hesitate to leave a comment. I really would like to hear from you and I hope you are all doing very well. Take care, Forest.