Remember ‘lifestyle choices’? Shall it be a new kitchen or a new garden and deck this year?
Shall we buy a new SUV or take that month long family holiday to Australia and New Zealand? Should we buy that cheap holiday apartment (for just €100,000) in Kusadasi or in Croatia?
A ‘lifestyle’ is now synonymous with debt in this country; a ‘life’ is usually something you manage, as well as you can, through earnings, savings and as little debt as possible.
We are now a nation of people who are rediscovering what having a ‘life’ is all about.
We’re realising that our obsession with borrowing and spending on stuff we didn’t need and couldn’t really afford is going to result in a life-long process of debt repayment for many.
The private debt bill for the fewer than two million earners is so huge – over €100 billion in mortgage debt and €3 billion in just credit card debt alone.
That the current estimates of one fifth of all mortgage holders and renters being in payment arrears is probably just the tip of the iceberg. The numbers of homeowners that could default is now estimated at about 75,000.
Next week’s Budget is another great iceberg towards which we are on a collision course, which is why you should be acting now, rather that waiting any longer, to consider your options if you are already in serious debt.
If you are unable to pay your taxes or VAT (if you have a business or are unemployed), your rent or mortgage, utilities, bank loans and credit cards and other bills like insurance payments, school fees and even food. So begin by:
1: Drawing up a schedule of all income and expenditure so that you – and your creditors – have an accurate picture of your financial position.
All other assets (house, car, pensions, household goods, jewellery, etc) should be included as well. Consider renting a room or rooms (for up to €10,000 tax free) under the Rent a Room Scheme.
2: Go to your local library and take out Eddie Hobbs’ book, ‘Debt Busters’ which lays out half a dozen worked examples of different degrees of personal debt and how to prepare a debt and repayment schedule to present to your creditors.
Mortgage lenders are giving a six to 12 months moratorium to homeowners in arrears before they pursue legal action. Other creditors are under no such obligation, so make appointments to see them too.
3: If you need help in appealing to your creditors, approach your local credit union, MABS office or St Vincent de Paul charity for assistance. A problem shared is halfway to being solved and each of these agencies is there to help.
4: If you are hopelessly insolvent and in serious arrears – and this doesn’t just concern low earners who were sold sub-prime loans, you need to look at all the options and decide how realistic it is for you and your creditors to try and refinance your loans.
This latter option is one that requires consultation with your lenders, creditors and ideally an objective agency like MABS, your solicitor and/or the assistance of an insolvency advisor.
The lender may prefer that you accept a new repayment schedule, or even a (once off) purchase/rental arrangement with them so that they hold the deeds but you pay both capital and rental payments.
This may not be the most appropriate long term arrangement if it doesn’t involve a large write-down of capital and instead means that the capital debt remains the same, but you now pay rent until you can revert to full capital payments.
Given now far property values can (and I believe, will) fall, you may never be able to repay the debt in your lifetime.
Formal bankruptcy in this country is inflexible, hugely expensive (it is a High Court action paid for by creditors) and rare – only 15 occurred here in 2008 compared to 67,000 in the UK and more than twice that number of UK personal insolvencies known as IVAs.
Informal insolvency arrangements do exist here, arranged on a case by case basis here under a pilot plan devised by MABS and the Irish Banking Federation and MABS.
Where successful, creditors agree to an equal, proportionate payment of their debts, often repaid from the proceeds of assets like the debtors’ house, car, etc and the debtor is relieved of all or most of their debts.
It may take them many years to rebuild their compromised credit records, but it does give them a chance to start again.
5: Finally, many parents and families are coming to the rescue of their indebted children and grandchildren by lending them money.
This is being realised through early inheritances to pay off certain high cost debts – or are helping to pay their monthly mortgages or to even do a debt for equity swap by having their own names put on the deeds as co-owners.
All of these will certainly be less costly than court proceedings or shared ownership schemes put forward by the banks.
No parent wants to see their child thrown out of their homes but before you undertake any of the above, make sure you get proper legal, tax and financial advice on how this could compromise their own finances.
Sometimes, tough love is also called for. It may be kinder in the end, to step aside and let your indebted adult child lose their home rather than watch them be chained to hundreds of thousands of euro worth of bricks and mortar that they are never unlikely to repay in either of your lifetimes.
Better that they have the freedom to move on to the chance of rebuilding a new life, poorer but wiser.
For all your banking and insurance needs, check out Postbank at your local post office or LoCall 1890-30-30-40