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Attitude Towards Personal Debt

Discussion in 'Speaker's Corner' started by afraser2k, 20 Feb 2006.

  1. afraser2k

    Sgarrista

    Joined: 18 Oct 2002

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    Location: Glasgow

    Inspired by this thread on someone's "serious debt", I was worried by some of the attitude to personal debt, especially student debt and the loans they get. I wonder how many realise that it all counts towards the amount of mortgage they can get when buying their first home?

    Are we now facing a problem that these same people will have the same attitude in future by only paying off the minimum (thus having large interest) rather than paying it off or is it just part of being a student these days? With the changes in bankruptcy laws recently (that I mentioned in the same thread) are we going to have a larger problem in a few years time when it begins to hit home just how much debt people are taking on and the consequences for the rest of us? No doubt the credit companies will pass any charges on to customers who do pay.

    Is it too easy to get into debt with credit companies offering vulnerable people loans or is it personal responsibility for taking them in the first place?
     
  2. Bear

    Capodecina

    Joined: 24 Oct 2002

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    Location: Bucks and Edinburgh

    The problem is that some students havent any choice but to take out loans to be able to afford to pay fees, rent and live off.

    When I was a student, I was the last year that didnt have to pay any fees luckily. I got a grant that didnt even cover my rent, and took out the maximum student loan out to pay for the remaining outstanding rent which left me with about £1400 to cover living costs (food, bills) and books. I worked through most of my time in uni although I decided I wouldnt work during my final year to concentrate on my course work/project.

    I came out with £6600 in student loans, £600 on a credit card and a £2400 overdraft. Total £9600.

    The overdraft became £2400 and I borrowed an extra £1000 for relocation when I got my graduate job. Note I dont smoke or drink alcohol.

    I graduated 5 years ago and have almost paid off my student loan (will have done in Sept), credit card is paid off and my overdraft is £1800 which my attention will be moved to. This is all being paid despite having a £120k mortgage, so it isnt all as bad as it may seem, it was hard at the beginning though.

    edit: My mortgage is a joint one with my missus
     
    Last edited: 20 Feb 2006
  3. elroberto

    Mobster

    Joined: 21 Apr 2004

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    In my opinion the credit card companies have got a lot to answer for. They actively encourage people to pay the minimum on the balance or take a payment window every once in a while (Whilst adding interest on over that window), giving an 18 year old without much financial knowledge a few hundred on credit and then upping the amount a few months later, the extortionate interest rates, the payment protection plans which customers nearly always find themselves unable to claim against. To be honest, the only good things they have is the legal liability on purchases but there'll come a stage when they try to get parliament to scrap that law. Even the Mafia don't run rackets this well.

    I think people should be responsible for their financial situations to a certain degree but the financial institutions should also be a lot fairer in their lending. But obviously, they'd miss out on all those juicy administration charges and ridiculous interest fees that they rake in. A good way to stop people from getting into debt so badly would be to make sure that the minimum monthly repayment was set at a much higher level so that people wouldn't get such high balances on their cards.
     
  4. dirtydog

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    Am I alone in finding it wrong for people to say that the student loan isn't really debt, and is nothing to worry about? It still attracts interest which can easily add up to hundreds of pounds a year does it not? And it still has to be repaid in full - even if you go bankrupt :)
     
  5. afraser2k

    Sgarrista

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    That's partly why I started this thread, from the comments about student loans not really being a debt. It might also lead to considering other debts as "not really a debt".

    With the new changes in bankruptcy law the people saying this are going to be in for a big shock when the join the "real world".
     
  6. Bear

    Capodecina

    Joined: 24 Oct 2002

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    Location: Bucks and Edinburgh

    Ah in that case then my scenario doesnt really apply. I know my student loan is a loan as it costs me £125 per month. Which equates to roughly a £2.5k a year pay rise after tax when its paid off. I like to work in pay rise terms, makes me feel better :D
     
  7. dirtydog

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    I get the impression some of the students who run up large debts think that they will automatically be earning £20k+ in their first job, by dint of having a degree. I suspect some of them will get a rather rude awakening :eek:
     
  8. cleanbluesky

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    Yes, governments are a pain - but the good news is that if you really need something you can afford yet are a responsible person and can afford repayments the market has opened for ya
     
  9. dirtydog

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    I'm confused by this post, what are you responding to exactly...
     
  10. aztechnology

    Mobster

    Joined: 12 Aug 2004

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    Location: Oop North

    I personally think that we should all be responsible for our own actions. If a credit comapany thinks that someone is a "reasonable" risk, then I see no reason why they should not be offered a facility for credit. It's up to the individual to view this credit as it stands in their own situation, and whether this credit is the best way forward for them.

    Obviously some people who are not capable of making this kind of decision will "slip through" and end up defaulting on a debt, and it's those of us who do take out credit that ends up paying for this, but I still think that's Ok, I'm prepared to sub those "honest" mistakes (through already incurred charges).

    I couldn't help but notice that the OP in the linked thread was a student and had a more up to date PC than me in his sig, (I earn above average wages but my PC has to make do), he seems to live off take out, and is considering getting his bike out (inferring he pays somehow for transport currently). It looks to me like he is responsible for his own debt, and will be accountable for it. - the encouraging thing is that looks like he is prepared to tackle it. It's difficult to comment too much on students these days without it all turning into Pythons Yorkshireman sketch, but when i was at uni ( :) ), in a year of 60 students only 5 had a phone in the house and only a handfull had a VCR, - not everyone even had a TV. (these figure got "better" as we went through though as we where on a thin sandwich and we always came back from the summer with extra goods). These kind of details seem an anethema to students today.

    I don't think though that it is at all financially easy for students today, but I do think that the availability of credit makes them their own worst enemy.

    I do think though, that we are facing a problem with the "we'll pay it off tomorrow" mentality, and unfortunately it will probably be reflected in higher charges to responsible debtors. Changing this around will be only be possible if society once again views debt as soemthing to be avoided, and i don't expect that to happen anytime soon.
     
  11. Vonhelmet

    Caporegime

    Joined: 28 Jun 2005

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    The student loan is still a debt, but the repayment rates are so low that it's about the best debt you can ever be lumbered with. It's when people get into multiple overdrafts and multiple credit cards that the trouble starts.

    I've just closed a deal to buy a new car. We'd saved up for about 18 months and part ex'ed our old one and we'll be paying outright when we collect it on friday. The salesman was offering us 0% finance for 2 years if we paid 50% deposit, and couldn't believe we didn't want to take it. Why should we? We've already saved the money and can afford to pay. Yes, it's a good deal, but I don't want to be in a finance company's pocket even to that extent.

    The only debts my wife and I have are our student loans. When it comes to getting a mortgage I'll do it on the basis of the bank knowing our balance is consistently and often significantly in the black and that we're reliable customers, not on the basis that I've been prepared to borrow loads of money.
     
  12. dirtydog

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    I think the bankruptcy laws need to be tightened further personally. It is still all too easy for someone with nothing to lose to run up a ton of debt and then go bankrupt to escape paying it all back. Bankruptcy is no longer the stigma it used to be, and the period of bankruptcy is too short in my opinion.
     
  13. Rich_L

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    Yes it's a debt - but it has none of the conditions which make it a 'bad' debt, such as income-independent mandatory payments, plus it's interest rate is linked to inflation so (theoretically) as long as your salary increases with inflation, the amount you pay back in real terms stays the same. Additionally it's very affordable based on current repayment plans. I don't believe it's taken into account when dealing with credit, on my credit reports it is not mentioned and on the forms you have to fill in I've yet to see one with a 'Student Loan Balance' section. (although admittedly I've yet to take out a mortgage so it could be on these..!)

    If you earn £30k then you only pay £112.50 a month from a net income of ~£1,800 so it really isn't a large amount. If you lose your job - you don't have to keep paying it back. If you get a job that pays below £15k - you don't have to keep paying it back. There is no pressure to pay, no debt-collecting, no threat of court orders, hell you don't even have to organise a standing order or direct debit as it's done through PAYE!

    So yes, it is a debt - but something to worry about? Not at all - the figure may look big but it's the terms which are crucial and prevent it from being a worrying debt at all.

    Credit cards on the other hand, I agree with elroberto that the lenders are somewhat irresponsible, I remember going to the bank in my 2nd year asking for a £500 extension to my overdraft and somehow coming out with a £2.5k limit credit card..:confused: Then applying for a Virgin CC for a 0% offer and getting another £2.5k..this is all at the age of 20 with no job! Fortunately I've landed a £30k+ job now so it is all being paid off without any real impact, given the wonderful (albeit expensive) time I had at University I consider the interest payments on the credit well worth it for the time I had :D Others however I acknowledge may not be so fortunate and could end up in a real pickle if their projected job/salary vision does not go to plan and I think that the lenders must bear some responsibility for reckless borrowing as well as the person borrowing money.
     
    Last edited: 20 Feb 2006
  14. semi-pro waster

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    I still think of bankruptcy as having quite a stigma attached to it, certain careers are impossible after bankruptcy and certain options will be denied to you even after a discharge. Yes you can do it(although as you correctly pointed out earlier student loan debt doesn't disappear) but it still has connotations which aren't desireable in the least.

    Yes and no to is it too easy. Personal responsibility plays a big part but it could probably be explained better to some young people a bit more about debt and ways to manage money.

    I'm a student and will come out of university with a fairly hefty debt thanks to the Student Loans Company because I simply couldn't afford university without it. I am not overly worried about it because I have no choice if I am to go to university and the terms of repayment are about as good as I will ever get. It is a slight niggle at the back of my mind but I've got to concentrate on my degree first and hope that the outlay will be worthwhile for me, so far I feel that it has been but I'll see what the future holds.

    I could go off on a rant about higher education no longer being free but I don't want to take this thread that far off topic :)
     
  15. Bear

    Capodecina

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    I was watching a program the other day, think it was The Bank of Parents or something like that. Anyway the guy was taking about bankruptcy and even with the new laws that have come in/coming in, if the lenders can prove that you have gotten into trouble though repeatedly being irresponsible, you can be black listed for alot longer than most people realise IIRC it was in the order of 10+ years.

    What I didnt realise was, when on the verge of bankruptcy you can write to your lenders and ask to make a one off offer of what you can afford to pay off as a last attempt before filing for bankruptcy to clear the whole debt. I guess the lender would rather have something instead of nothing from you so they take the offer up. There was some fancy name for it but I cant remember what it was.
     
  16. dirtydog

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    Oh I'm not saying that bankruptcy is a bed of roses. I gather that it would be a painful process to go through, BUT it would be very significantly less painful than actually knuckling down and paying back the money with interest, to the lenders like the rest of us have done with our debts. (I used to have quite large debts but paid them all back and never defaulted or missed a payment.. yay me ;))
     
  17. skolem

    Gangster

    Joined: 19 Oct 2002

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    Students don't see their student loan as a traditional debt, as they were told by everyone around them that it's not. (And to an extent it isn't, but a debts a debt)

    Similarly, adverts on TV and other mediums tell us that it's ok to take out more credit or to consolidate our existing loans into one big debt and even have money left over for that new car. People do have an individual responcibility, but it's no surprise to me that people have the attitudes they do toward debt when so many sources are telling them it's OK.

    Personal debt in this country is rising, surely it can only be a matter of time before the bubble explodes and a lot of people are in serious trouble...
     
  18. semi-pro waster

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    Good on you for paying the debts back. However some debts would be simply impossible for someone to pay back especially as because of their bankruptcy they might have lost their current job/position(director of a company etc). Since I don't believe in punishing people indefinitely that means that there will be some people who simply work the system and that is unfortunate but I'd like to believe that most people would rather try and avoid bankruptcy in the first place and would attempt to work their way out of debt or come to a settlement with their lenders.
     
  19. The Running Man

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    most people are head down and ignorant and seem only content to spend more, despite debt?

    i have 12k student loan debt, and i let it take care of myself from my wages. i dont have any overdraft, or other loans, as i would rather skip a holiday, or go without buying the latest fashion accessories to mantain my positive financial postion (forget the student loan lol)
     
  20. Slam62

    Sgarrista

    Joined: 3 Jan 2006

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    Unfortunately, a lot of people dont appear to have common sense or are reckless or are naive (ni-eev) anyway the checks that should stop people over-committing themselves are continuously flouted by the credit companies. Mainly because the person selling you the credit etc has no responsibility beyond the initial paperwork and commission.

    Or to put it another way, they hand out loans and credit cards far too readily these days, a debt is a debt and sooner or later you'll have to pay it back plus interest.