Most people experience some level of hardship from time to time, and for some, it becomes so debilitating that they feel beyond help. This is often compounded by the embarrassment that comes with admitting that you have a problem to someone else, but that's a whole other article!
I was recently contacted by Alice, who was feeling the pinch quite acutely. Here's the start of her email:
Okay, so my situation is that I am struggling with debt and I feel like I'm drowning more and more each week, and not sure what the best way is to go about it.
This is a typical scenario: someone becomes so overwhelmed by their debt that they become paralysed, paralysis means no change occurs and they slip further in to debt. Alice's story sounded familiar. She had 2 credit cards, a car loan and two personal loans - in total she owed almost $50,000, and repayments were forcing her almost to the bread line. She had a few thoughts from the outset on what her options might be, but the enormity of her realisation made to hard to see the situation in perspective. Now as someone who has seen people get themselves in to these situations before, I've met two types of debtor. The first is the person who realises they have an issue but doesn't want to change their lifestyle. The second is the person who realises they have an issue and will do whatever it takes to get out of that situation.
Alice went on to say:
Any suggestion you could offer would be greatly appreciated! I don't care if it takes me four times as long to pay out all my debts, I just need a bit of breathing space and a bit of cash flow again.. I can't keep living like this, it feels like I'm drowning and the water is only getting deeper.
After considering her situation it was obvious that she felt out of control. I felt she wasn't yet ready to start on a wealth building plan - she needed to get off the slippery slope first and find solid ground. My four suggestions were for her to: - evaluate her current spend on vices and discretionary expenses
- pay off loans with highest repayments or consequences first
- consolidate high interest rate loans
- if minimum repayments came down, to try and pay more
I call this the Survivor plan (I'll write it up in full sometime soon). It's for those who are barely surviving on what they have and can't see a way to even begin with wealth creation. I was thrilled to hear back from Alice just the next day and hear that she had investigated consolidation with a reputable lender and identified new areas where she can make savings in the short term. As every dollar paid over the minimum repayment amount is typically applied to the loan (not future interest repayments), each extra dollar actually pays off more than the first. Her most recent email:
Basically.. I am looking like being debt free by the end of 2016.. which seems very far away, but hopefully once I get things properly organised, it will come quickly.
I love an outcome like this. Alice's self determination and proactive outlook to solving her issue means she's on the fast track to taking control of her money again, rather than letting it control her. A huge thanks to Alice for allowing me to share her story. She does so in the hope that hers might save someone else from making the same mistakes she did.