Debt lessons from a young woman who drowned in debt

Thursday, 15 August 2019

Borrowing adds cost, and risk to your life.

In her early 20s, 'Jayne' was the model for a loan advertising campaign.

Bitterly ironic then that she ended up going through a life-changing No Asset Procedure to clear the debts she was drowning under.

Jayne (not her real name) built $27,000 of personal debts buying cars and living the kind of lifestyle young Aucklanders aspire to.

'I wanted to have the best car, the best TV, and now I'm like, why?'

Shopping on easy credit is tempting, but the risks that come with being in debt are bigger than people realise.

* Lazy mortgage strategies flush your wealth away

* New Zealand's huge home loans are crazy**

'I wish I didn't care what other people think of me,' she says.

You may be tempted to launch into a judgmental lecture at this point starting with the words: 'In my day…'

Don't. Put your rose-tinted spectacles away.

I'm knocking on the door of the 50. When I left university, credit cards were still relatively unusual. I didn't have one until I was nearly 30, the age Jayne is now.

I spent my formative adult years in a far lower-debt world.

Saturate a country with fast food and sugary drinks and obesity increases.

Saturate a country with easy-access credits, and more young optimistic, naive, inexperienced people will end up in debt, and a proportion of them, no matter how 'responsibly' lenders behave, will succumb to those debts.

Jayne fell pregnant, and when born, her much-loved baby developed health problems. Her income was interrupted. Her debt became unmanageable.

Her warnings to other youngsters:

* Consumer debt is riskier than you think.

* You can easily borrow more than is good for you.

* Lenders are not sympathetic when you claim 'hardship', and are deaf even when you have a baby to look after.

* Consumer debt can ruin your credit rating and destroy your chance of becoming a homeowner.

* Once things go wrong, it's hard to reorganise your life. Just try switching power company seeking a lower bill when you have bad credit.

* All this can take a terrible toll on your mental, and physical health. At her lowest point, Jayne's hair started to fall out through the stress.

The No Asset Procedure (a kind of bankruptcy-lite for people with debts of less than $47,000) ended her misery, and gave her a chance to start over.

I talked to Jayne this week because she's in debt again.

But it's good debt, or at least as good as it gets when it's not a loan from your mum or dad.

Some is from Work & Income to cover moving costs as her landlord sold up forcing her to move.

The rest is a low interest loan she used to buy a car from the Community Finance scheme bankrolled by BNZ, and administered by the Salvation Army.

At 6.99 per cent, the Step Up loans are a far cry from the 29 per cent she was paying on one of her pre-NAP loans.

Since 2014, BNZ has leant out $5 million through the scheme to over 1700 families saving them around $1500 or so each, and has committed another $60m to lend.

The aim of the scheme is to break cycles of high-interest debt, and to that end, BNZ is working on providing low interest debt consolidation loans through the scheme.

It may be a drop in our debt ocean, but for Jayne, it's been the equivalent of a life-preserver.

GOLDEN RULES:

* Raise your children to be debt-averse

* Be open about finances with them

* Make sure they know