Better borrowing: Expert advice for avoiding problem debt

In association with the Insolvency Service of Ireland

When you’re looking to purchase big ticket items like a car, a new kitchen or even a house, chances are your first port of call will be a bank or credit union in search of a loan.

Most lenders are very careful about making sure their customers can cover repayments, but there are a few things borrowers need to consider as well. We spoke to ISI Director Michael McNaughton about what you should bear in mind when thinking about taking on debt.

Is it always a mistake to borrow money?

Borrowing money to fund a new home, car or even a holiday is not only normal – it’s pretty much universal. You’d be hard-pressed to find someone in Ireland today who doesn’t have some kind of loan or credit facility.

This can be an absolute life-saver once you can manage the repayments, but if something changes – a sudden illness, redundancy or even a broken boiler – debts can spiral out of control and it can be near-impossible to dig yourself out.

How can I borrow responsibly?

Borrowing money or taking a loan or any other kind of credit is not something to be done lightly or quickly. The time you take in weighing up options before borrowing is time well spent. It will help you to be sure you have the right kind of credit for your needs, and so reduce your chances of getting into difficulties. So, what do you need to consider? It helps to ask yourself the following questions:

• What am I borrowing for?

• Could I save for this instead?

• Am I sure I really NEED it?

• Do I really need it NOW?

Thinking it through in a systematic way like this can help you decide whether or not you should be borrowing money.

What does problem debt look like?

Recognising the warning signs is the first step towards addressing the issue, here are a few things that can indicate that you are struggling with problem debt:

• You make sacrifices on day-to-day essentials after you pay your bills each month.
• You have been late with rent or mortgage payments more than once in the past year.
• You have to borrow from friends and family to get you through to the next pay day.
• You’re afraid to tot up your debts - You don’t know how much you owe.
• You’re hiding your debt from your spouse partner or from family and friends.
• The amount you owe, on credit cards, etc., increasing each month.
• You’re paying one credit card off with another.
• Your finances are causing more frequent arguments at home.
• You have to choose which bill to pay late every month.
• You’ve had a new loan application rejected.
• You are often charged late payment fees.
• There is nothing left at the end of the month to put into savings or an emergency fund
• You have trouble sleeping – worrying about money keeps you awake at night

If this sounds familiar, it could be a sign that you’re insolvent and putting yourself through unnecessary hardship.  It can be tempting to bury your head in the sand and hope that the problem will go away on its own but that will ultimately lead to more stress and worry.

The ISI has an information line you can call at 076 106 4200, you can also free text GETHELP to 50015 for a callback or visit www.backontrack.ie

My circumstances have changed and my income has dropped. What should I do if I can no longer service my debts?

It’s all too easy to slip into problem debt.  You try to get on top of things but the debt just keeps growing. Being in debt this way can be a vicious circle and it’s sometimes hard to see a solution. It may not seem like it at the time but there are always options.

Problem debt is extremely stressful, but the ISI can help you find a solution. Even if you have received letters stating that your mortgage is unsustainable, threatening repossession or a court appearance date, it’s still not too late to sort out your finances and keep your home.

First we recommend that you talk to a PIP (Personal Insolvency Practitioner). Qualified professionals regulated by the ISI, PIPs have the relevant expertise to help you reach a permanent solution to your debt problems. They will advise you of all the products, options and solutions available to help you get you back on track financially. If you are in arrears on your home mortgage you could be eligible for a free PIP consultation under a new State-funded scheme.

Below are just a few things to keep in mind if you are experiencing mortgage difficulties:

Keep communicating with your lender

It can be tempting to ignore letters and phone calls from your lender, however in the long run it’s best to keep communicating with them. Lenders are obligated to engage with borrowers who are in arrears and repossession should always be a last resort.

Don’t ‘give back the keys’

Leaving the property and giving back the keys is not actually a solution, as you remain the legal owner of the property and are still liable to repay the mortgage until either repossession; voluntary sale or voluntary surrender of your property is completed.

Attend your court hearing

If you have received a date to appear in court about a repossession, be sure to attend.

Otherwise your side of the story won’t be heard and you could miss an opportunity to have your case resolved. Plus in most cases, attending court and showing that you have made some effort to make repayments will reflect favourably on you.

The main thing to remember is that you are not alone when it comes to dealing with problem debt. If you recognise any of the scenarios above, don’t suffer in silence – talk to the ISI today and you will be well on your way to finding a solution.

For more information about the Insolvency Service of Ireland and the services they offer, visit backontrack.ie, freetext GETHELP to 50015 or call the ISI’s information line at 076 106 4200.