Mortgage | Till Debt Do Us Part

Renting is better than buying and here’s why

Sep 172008

I currently rent. A few years ago I was looking at buying an apartment in the area that I currently live. I didn’t buy a place because I felt that the housing market was overpriced and I didn’t want to be lumped with even more debt. That said at the time I was looking into buying a place I had a lot of debt (I still do) that would have prevented me from getting a mortgage. I was told that I could have fudged a few things and get a mortgage but I knew that I wouldn’t be able to pay so I declined. On top of that the fact that I was being advised to fudge a few things meant that things were really getting out of control.

I’m glad I didn’t buy – obviously – but I don’t want to rub people’s face in it who did buy. I know lots of people who bought at what was the absolute peak of the market in 2006 and are now sitting on a whole pile of negative equity. Not nice and I wouldn’t wish that on anyone.

At the time I was looking into buying a place I kept hearing the statement “Renting is dead money”. People smugly reassured me that I was ‘stupid to be renting’ and I was treated as some sort of social leper when discussing house prices at parties. At the time it was hard to ignore their arguments and the collective property mania. In most cases I had to agree as I watched people I knew make double digit gains on the value of their homes and there I was paying a monthly rent with very little to show for it. In a way my debt saved me.

What changed?

The most obvious thing that changed is the market. House prices plummeted. I don’t have to go through the ins and outs of what happened. I’m pretty sure that most people are familiar with the housing market collapse. My so called friends were no longer crowing about the virtues of buying houses.

As a renter I have being insulated from the fall in house prices. As I don’t own any property I am not directly affected by house price falls. In fact I could go as far to say that I am a net beneficiary of the housing market crash. In the area that I live a lot of apartments were built by property speculators in the hope of turning a fast buck. Most of them did not sell and as a result they are now being rented out. This additional supply has pushed the rent down in the area and my rent hasn’t gone up in two years.

Dead Money

In the last few years I have probably spent about $28,000 on rent. When you look at it in one lump sum it is a scary amount. But the way I think about it is slightly different. The value of the apartments where I live have fallen an average of between $50,000 and $100,000 in value. So in effect I have save anywhere between $22,000 and $72,000 by renting because if I had bought at the time a few years back and not rented I would now have a larger mortgage. I can buy the same apartment for a lot cheaper now.

What else?

Two weeks ago my boiler broke and I had no hot water. I rang the landlord and the next day he came around and fixed it. Apparently there was a big problem with it – it took him most of the day to fix. I reckon that if I was to get a plumber out to fix it that I could have spent anywhere up to $600 on getting it fixed. I got it done for free. The reasoning is obvious. The landlord needs to have the apartment in good working order if he is to rent it out.

If anything goes wrong I simply ring him and he comes around to fix it. I don’t have to worry about organizing a plumber or electrician; I don’t have to take time off work to be at home when they call and best of all I don’t have to pay for it!!!

I’m not at the mercy of the interest rates. Rates can go up and it will not affect the amount of rent that I am paying. On the flip side rates could go down and I would not see the benefit from that either.

Any downsides?

Of course! I don’t own my place so I can’t go and start changing things like the color of the walls or the furniture. I suppose if I really wanted to I could ask the landlord and I’m sure he’d be okay with it but it seems like a lot of hassle. As I’m renting I tend not to want to invest too much time or money into the apartment. I keep it clean and tidy but apart from that I don’t put much else into it. I try to avoid clutter so I don’t buy plants or stuff like that. Some say that it leaves the apartment rather clinical and not homely but I don’t mind as I like it that way.

I’m always on a four week watch. If for some reason my landlord decides he wants to sell his property then he is only legally obliged to give me four weeks notice to pack up and leave. This could be considerably inconvenient depending on the time of year. However this four weeks notice period works both ways. If I want to leave I only have to give four weeks notice.

On balance renting wins for me

For me overall renting is better that buying – especially at the moment. I think in a year or two I will be in a much better position to buy a place and I will do so then but in the meantime it is renting for me. The advantages outweigh the disadvantages and it allows me to save and plan for my future and for when I do decide to buy.

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Laugh in the face of debt

Sep 012008

What’s the point in being miserable all the time?

At any one point in our daily lives there are a multitude of things that we can get worried and stressed about. On a grand scale things like terrorism, climate change and the economy will serve up stress. On a smaller but more important scale are the individual fears and worries that we all can have, things like work, relationships, money and in particular debt.

Combine all these things together on any single day and you have a recipe for major stress. By major stress I mean that sick in the pit of your stomach feeling like you are floating on a stormy sea of stress with no beacon of light or hope to guide you, nothing around you only miles and miles of stress.

Not a pretty image.

That said I don’t want to dwell on the negative for too long. I want to speak about a mental approach that can empower you on stressful days. In my article “The dark depressing days of debt” I spoke about how diet and sleep patterns can have a huge impact on your mood. The aim of that article was to help you to stabilize your mood. Now I want to take it to the next level.

What next level?

In my mind the next level up from stabilizing your mood is the level where you are feeling good enough emotionally and physically to start thinking about your debt and the positive actions you can take to get control over your finances.

This site is full of the positive actions you can take to make your finances better so I won’t go into them in detail here. What I do want to discuss is how to boost your mood when the world seems to coming in on top of you.

Laugh in the face of your debt

You’ve probably heard the phrase “laugh in the face of adversity” well I want to change this to “laugh in the face of debt”. A little corny – ok I’ll give you that but I think if you can put aside your reservations and think a little more about what the spirit of the saying “to laugh in the face of adversity” is all about.

To laugh in the face of adversity basically means to take anything that life throws at you and throw it right back.

The following link contains an article that very clearly demonstrates the link between laughing and stress relief – Laugh in the face of adversity: I’m not kidding. In this article the author makes the point that “Humor provides the unique opening to move forward on a positive note.”

To me this just about sums up everything that is good about laughing at your situation.

When I say laughing at your situation I don’t mean a kind of sarcastic and cynical laugh. I mean a good hearty laugh at what has gone wrong. When you laugh at your situation it has to be from a fun and positive perspective – laugh at the silliness of it all. Laugh at how silly you are to be worrying about things that are beyond your control. Laugh at how crazy money makes people.

If you can do these things and adopt a positive relaxed yet proactive attitude to your debt then I can almost guarantee that you will be laughing all the way to the bank.

The windfall mentality won’t get you out of debt

Jun 302008

Recenty I wrote an article about buying lottery tickets when you were already heavily in debt. The main thrust of the article was focussed on the element of hope and how you can increase your chances of winning big money by joining a syndicate. I argued that while playing the lottery was a luxury it did offer a tiny glimmer of hope in what can otherwise be a bleak financial outlook. As such I argued that playing the lottery could be a good thing as hope is always a good thing.

Since I wrote the article I have come across a strange and slightly disturbing phenomenon related to the lottery post or more accurately recognized something that already existed. It was something that I had seen in a few people I knew and experienced it myself but I couldn’t quite understand it before. It is really only since I wrote that post did I come to understand it better. I call the phenomenon ‘windfall’ mentality.

Windfall Definition: Any unexpected acquisition, gain, or stroke of good luck

The attitude which accompanies the mentality is built around the idea that the money to pay off the person’s debts will come from somewhere – they will have a windfall. People with the windfall mentality will not focus on things like cutting costs and increasing income rather they will focus on things like playing the lottery or visiting an old aunt with the hope that she will leave them money in her will. Windfall mentality can be described as a sort of double or quits mentality – lets keep accumulating debt in the vain hope that someday soon we will have a windfall and that we will be able to pay back out debts in one go.

I had seen this attitude in people before but I could never quite put my finger on it. I always thought that these people were greedy or deluded but the reality is that they are just trying to cope the best way that they know how. Their mind has put them in survival mode. Unfortunately the way they are trying to cope with their debts is far from optimal – in fact I would go as far as to say that what they are doing is living in a fantasy world where they hope someone with a magic wand will rid them of their debts.

I think for all of us in debt that we all experience some form of this windfall mentality. I suspect that this usually occurs when we are in the denial phase of our debt. I have personally experienced this windfall mentality first hand. I was convinced that one of my share investments was going to be a multibagger (i.e. go up loads) when one of their new products came out into the market but this never materialized. It was only when the company came out with a profit warning did I realize that I had been kidding myself. The share tanked and I was in a worse state financially than I should have been. The struggle back was a lot more painful than it had to be.

I think for most people this windfall mentality doesn’t last long and people are smart enough to realize that their debts can only be solved by their own direct actions and efforts and not by some windfall. However for some the windfall mentality lasts a lot longer than the initial denial period. Some people never come out of the denial phase and are in a constant state of waiting for things to come to them rather than going out and making things happen.

Invariably nothing ever comes to the people with the windfall mentality. They sit and wait and hope and dream about how someone or something is going to give then thousands of dollars to solve all their problems and how life will soon be good again. It’s only when they are confronted by debt in a real situation such as a repossession that they get shocked back into reality and they then realize that they have a lot of lost time to make up.

The question you have to ask yourself is if you have the windfall mentality. Do you daydream that someone is going to save you from your debt with a nice lump of cash? Ask yourself how likely is it to really happen? I believe in miracles as much as the next person but I also believe that you have to go out and make your own luck. Are you making your own luck or are you waiting around for someone else to make it for you?

Saving while in debt – does it make sense?

Jun 252008

Saving while in debt seems to be a bit of a contradiction. If you are in debt then why should you save? Shouldn’t every last cent be going towards paying off your debt? Ah you must mean the emergency fund? Right? That fund that all the financial gurus recommend you have. Well the thing is that I’ve read a couple of articles recently that say you should not bother having an emergency fund and that all the money that you would have saved should go towards paying down your debt.

I disagree.

The emergency fund seems to be one of those worn out clichés that you hear about every time that you pick up a book on Personal finance and debt management. Its used so often that I feel it has become part of some text book response when some one is in debt. Very few commentators seem to go into much detail as to the true importance of the emergency fund and as a result people probably don’t put as much importance on it as they should.

Controlling your personal finances is a lot like playing a strategy game like chess. Chess is a game of strategy whereby you use various strategies and moves to defeat your opponent. One of the key things about chess is that you always have to leave different strategies open to you. You shouldn’t close too many options off by losing strategic pieces too soon into the game. When you are controlling your personal finances you have to employ various strategies to reduce your debt. An emergency fund is one of those strategies.

If you were to put all your money against your debt you would be limiting your options, limiting your strategies.

The main point that the authors who advocated putting all your money against your debt were making was related to the interest difference. If you have a high interest debt such as a credit card debt at say 17.5% but you only actually receive 5% interest on your savings then it is effectively costing you money to have savings because you are paying a higher interest rate on your credit card debt for longer than necessary. On a pure math basis then this makes perfect sense.

When you are in debt pure math and logic doesn’t always win the day.

That crazy little thing called psychology plays a huge part in controlling your finances and your emergency fund is no different. From a financial payoff point of view having an emergency fund is not optimal. However from a psychology point of view having an emergency fund is crucial.

As with the game of chess, it is important that you always have something in reserve when it comes to your finances. Having an emergency fund affords you some comfort that should some emergency arise that you are not going back into debt and in the wrong direction to tackle it. This provides a great psychological boost as it allows you to draw strength from the fact for the first time probably in a long time that you have not had to rely on your plastic to get you out of a tight corner. This can be empowering.

Take it a step further. When you see your emergency fund grow along side your debt shrinking you can’t help but get more motivated. The sense that you are gaining control of your finances can be immense. For most people this spurs them on to further action.

The other key thing I disagree with when it comes to not having an emergency fund is access to cash if there is an emergency. Imagine that you have no emergency fund but you have put all your available funds against paying down your debt. Then an emergency happens and you need cash fast. Where do you go for it? Borrow on your credit card? Ok it is an option but you are going back to square one, the same with a loan or and overdraft. They all lead you back to a place you do not want to be. In some case as soon as you have paid off your debts these avenues of raising cash may be closed off to you. This is of key importance if you decide not to have an emergency fund.

Bad things happen to good people

I’m not advising you whether or not you should have an emergency fund – this is something that you will have to decide yourself based on your own personal circumstances. However the one thing I will ask you is this. How often in the last three years have you found yourself in a tight spot when it came to money? How did you manage to get out of that tight spot? More borrowing?

I hate to say it but bad things happen to good people. The more financially prepared you are to respond to such emergencies the less of an impact the emergency will have. As with chess, financial management is all about strategies and options. It is up to you to make sure you have plenty of options available to you. For me an emergency fund along with adequate insurance is one of the best ways to prepare.

Debt consolidation – Where is the catch?

May 062008

On paper debt consolidation looks great. Take all your monthly debt payments and roll them up into one nice smaller monthly payment and hey presto you have just performed financial magic! Oh if only it was that simple. The realities of debt consolidation are not so magical.

As I navigate my way through the internet looking at various services offered on debt related sites it strikes me as strange the way that they use the terms Debt Management and Debt Consolidation interchangeably. This can lead to a lot of confusion. I know it has for me. In its true form Debt consolidation is simply taking out a large loan to pay off all your smaller debts and reduce your debt payments to one payment a month. Generally it is the case that people with smaller unsecured loans like credit card debt take out a larger loan to the value of their debt which secured against there house or some other asset. Then using this new larger loan they pay off all their smaller more expensive debt.

Take a person who has lots of unsecured debt for example credit card debt but they also have some equity in their home. Assuming that the bank is willing that person can withdraw some of the equity from their home or get a loan secured on their house. The person can then take this money and repay all of their smaller debts.

Creatures of habit

Debt consolidation can work like a charm provided that once the existing debts that the loan is being used to repay are repaid and no additional debt is incurred. Now you and I both know that in the majority of cases what will happen will go something like the following scenario.

As soon as the small annoying debts are paid off and are rolled into one monthly payment the individual can, for probably the first time in years, see their financial situation clearly. They can see that they now have a reduced payment to make and have rid themselves of the financial clutter. They say to themselves – ‘Never again’. However after about two months the temptation becomes too great and they decide to make one little purchase on the credit card that they have kept for emergencies and so the spiral continues. In about eighteen months they are looking to consolidate their debts because it worked so wonderfully the first time.

Does debt consolidation make sense?

It really depends on your current financial situation and what you are trying to achieve. The key attraction of debt consolidation is that it frees up cash flow, for example if you were paying $1200 in debt repayments each month and managed to consolidate your debt and only had to pay $750 a month then you are freeing up $450 cash each month. This additional cash flow can be used to increase your savings. The point is it takes the pressure off you to come up with $1200 because now after consolidation you only have to come up with $750.

On the flip side if you use the equity in your home to consolidate your debt then you are now spreading your short term debts over a much longer timeframe and as a result while the interest rate may be lower and the repayment amounts lower you will end up paying a lot more in interest.

The advantages and disadvantages of debt consolidation can be summarised as follows

Advantages of debt consolidation

1. It clears the financial clutter from your monthly payments. You go from having any amount of monthly payments to service your debt to just one single payment.

2. It is possible to reduce monthly out goings significantly.

Disadvantages of debt consolidation

1. You are paying your small debts over a much longer period and as a result while the interest rates may be lower you will end up paying a lot more in interest because it is spread over such a long period of time.

2. The fees to arrange debt consolidation are usually quite high.

Debt consolidation is simple in theory and it often sold as the solution to all your problems. Unfortunately the reality is somewhat different. While there are certain advantages to debt consolidation there are disadvantages to it also. You need to be aware of these before you decide if debt consolidation is right for you. Do your homework and make sure that if you do avail of debt consolidation services that you thoroughly research the company that is providing the service. The same applies if you decide to consolidate yourself without using the services of a specialist debt consolidation company.

Debt Free – Starting from where you are

Apr 072008

Do you really have a problem with Debt? The simplest rule of thumb to decide if you do is to take the stress test. The stress test is simply this – when the word ‘Debt’ is mentioned in general conversations do you feel your level of stress increasing? If yes then read on – if no then I suggest you find out why you are on this website but not yet stressed about your debts.

The real problem with Debt is that it’s not a sudden thing. It’s more a case of the frog being slowly boiled to debt in a pot of hot water than being dropped into a boiling pot of water and then jumping straight out. Mortgage aside – I’m sure that if some one said to you when you were fifteen – you are going to grow up into a responsible adult with a mountain of debt you would have said straightaway – no thanks!

Commitment

Ah the C word – yes it’s almost like a marriage. You are effectively married to your debt…until debt do us part. Well the sad fact is that the majority of relationship break ups are caused by financial problems. With Debt you can’t always up and leave the relationship. Yeah sure you could file for bankruptcy but then the shadow of your debt will still follow you around for years to come.

So you are effectively committed to your debts whether you like it or not. That’s the unfortunate reality of the situation. Your creditors have you. They own you. It’s not nice to hear it being put like that but that is where you are starting from. You are effectively a slave to your debts and to your creditors. Each morning when you go to your ‘Wonderful’ job keep in mind that you are in fact going to work for creditors and they are laughing at you all the way to the bank.

Does this upset you? I sincerely hope it does. The reason why is not because I like making people feel bad but because you can harness the good from these negative emotions.

You have two choices – let the anger and frustration at your situation grow into despair and inaction or you can use your and anger and frustration as energy to push you to tackle your debts.

The cause and effect principle

If you do decide to tackle your debts the actions you take now will have a long term positive effect on your life. If you do nothing and let your debts continue to mount then you will pay the price in the long run.

Pay the price now in terms of discipline and action or pay the price later in terms of despair. Your call.

Debt by Stealth – this is the cause of your Debt

Mar 292008

In my opinion based on first hand experience the majority of people who have large debts have sleep walked into them. I’m not saying it’s their fault but what I am saying is society is set up in such a way that it’s hard not to incur large debts. Some people might argue that it is the individual’s responsibility to look after their own finances and I would agree but from a young age in the society we now live in we are all primed and conditioned to take on unnecessary consumer debt. Now don’t think I’m saying all this to be controversial but the simple fact of the matter is that most debt is by stealth. Debt by stealth. Let me explain.

As we make our way through life there are certain expenses we need to incur to help us on our way and there are other smaller discretionary expenses that we don’t need to but feel obliged to incur.

Let’s first take a look at the bigger debts we face in our lives.

Student Loans:

To get you through college you probably had to take out student loans. The loans needed repaying and as soon as you left college so the pressure was on to find a nice stable job so that the banks could stake their rightful claim on your income. I suppose at the time it made sense – a trade off between getting a good education and good job versus taking out a small student loan. If only it was that simple – yeah sure you needed the money at the time and college is very expensive but the problem is it sets the tone for the rest of your life. The banks hope to get you into the borrowing habit at a young age so they have you as customers for life. Pretty smart eh?

Mortgage Debt:

Mortgage debt can be justified by the need for somewhere to live right? I mean that’s a no brainer. Ok but think about it for a minute – the global property market has rocketed for the last 5 years. You bought because everyone else was buying right? You had a family to support and the banks were literally throwing money at you. Everyone else was doing it right? You were secure in the knowledge that ‘we were all in it together’. You took the plunge and things went your way..for a while. The value of your house grew in double digits for a couple of years and you thought that you were on easy street. What the heck? You thought, lets just drawn down some equity and go on a nice holiday.

Consumer Debt:

So now you have the house – well wooden crates for tables just won’t cut it. So off we go to the furniture store to rack up some more debt. The guy in the store seem to be offering a great deal with his low monthly repayment options on that sofa. The 28 inch screen TV that you had looks a bit dated so you got one of the new 40 inch plasma screens. On a lease plan of course. More debt! So far the debts look fairly easy to spot. They don’t seem to have much stealth but let’s continue.

The debt bite

The house, the TV, the furniture – all funded with debt. Nothing new here you say. Now we are in a situation that most people with this lifestyle find themselves. The monthly payments start to take a big bite out of your monthly take home pay. This added to the college loans you are still paying off leaves you with very little to spend on the ‘necessities’. Here are some of the so called necessities of life – that new outfit, the morning decaffe latte, the nice gourmet sandwiches for lunch, the expensive two week holiday, the latest ipod, the trendy trainers and the list goes on. If you sat down and analysed the outgoings on these ‘necessities’ it would not be hard to see how they all add up to a whole pile of debt because the chances are that most of the items on the list (and a whole lot of other items) were paid for using your credit cards.

Credit cards can be very useful if used properly but that’s the focus of another article.

Looking at your expenditure on a single day basis the expenses don’t seem to add up to much. True, on a daily basis these expenses look small and manageable but taken over the period of say a month then they don’t look so small and manageable. What is even more telling is that these expenses are not taking into consideration the loan repayments. So if you like you have the long term debt – i.e. debt that has a repayment schedule that is greater than one year for example mortgage, car loans, college loans etc. then these little ‘necessities’ that add to your short term debt situation. By being a drain on your daily finances these little things all add up to take a big chunk out of your monthly take home pay.

If you compound this spending behaviour over a year then the real impact starts to show. You end up either hitting your overdraft every month or adding any excess expenses on to your credit cards. Take this behaviour over a number of years and you have a problem situation. The problem is that unless there is a shift in behaviour then there is serious trouble ahead.

As you are probably beginning to see Debt by stealth is an ever present threat. You turn on your 40 inch plasma screen TV and you see the adverts bombarding you with information and trying to seduce you into buying. On your way to work listening to the radio or checking out the billboard advertisements, same thing again they all want a piece of you or more accurately they all want a piece of your money. Everything and everywhere there are debt threats. Western society is built on consumer spending, it’s the keystone of capitalism. Spend or die. But wait a minute, who says that you have to overspend? Where is it written that we have to keep up with the Jonses?

Keeping up with the Jones

Oh no not that tired and hackneyed phrase. I’m sick of hearing that – you say. Well sure it is a tired phrase that people seem to throw about but it does hold a lot of truth. Instead of the Jones if we used the word peers or friends then I think you would appreciate the sentiment in the phrase. Too often we find ourselves forced into a race to keep up in monetary terms with our friends, neighbours and relatives. It gets to the stage that we are running just to stand still. The neighbours have the latest car – we feel obliged to match them. Our friends go away on a two week vacation to the Far East. We have to go one better. Ultimately we end up in a competition that we just cannot win. We get stressed from the constant need to keep up, the need to maintain our social standing by spending.

Sure its nice to have nice things but where is the glory in having nice things yet being kept awake half the night worrying about how your going to make next months car payments? So what to do?

Wake up

As I said at the start of this article, it is my opinion that the majority of people sleep walk into debt. Then one day they realise that the money they are making is no longer enough to cover the bills. What usually happens then is denial. It can’t be that bad. If I ignore it, it will go away. And so the spiral continues, downwards, until they are faced with foreclosure and bankruptcy.

There is another way. It doesn’t matter how bad your situation may seem, no matter how little income you currently have, no matter how many creditors are calling. There is another way out.

You want to solve your debt problems? Then WAKE UP! I’m serious its time that you WAKE UP and took a long hard look at your debt situation. No one else is going to help you but YOU! Since this is the case then you need to take control of your finances and reign in your spending, look to pay off your loans early and maybe even consolidate your debt. There are numerous strategies to eliminating debt but you have to first realise the hard cold facts about your current debt situation. Its up to you – you are your only hope. All that the likes of this website can do is to provide you with information, tools and guidance but it is up to you as you go about your daily business to make the small and eventually the big changes to your spending and saving habits.

So saddle up for the ride. No its not going to be easy and yes it will take time but if you are will to change and are committed to the fight and are willing to learn and work hard then there is no reason why you will not be successful!! Go on I dare you.

The Pain of Debt

Feb 022008

Not long ago a friend of mine came to me with a problem. He had just recently broken up with his girlfriend and was having financial difficulties. He was not looking for money, well not exactly. He and his ex-girlfriend had taken out a 100% mortgage to buy their house. Since they were no longer together it had been agreed that he would take over the house and the repayments that went with it. The problem was the mortgage was in both their names and based on both their incomes.

My friend went to get the mortgage changed into his name but he ran into a brick wall. The bank was not prepared to change the mortgage into his name because it was not prepared to take the risk on my friend. You see my friend also has a significant amount of personal debt, credit card debt, overdraft and some outstanding student loans.

So if it wasn’t bad enough that my friend’s relationship broken up it also looked like he would lose his house. Now what did he want from me? Did he come looking for advice on how to repay his debts and stabilise his financial situation? Was he looking for motivation in his struggle with his debts? No, nothing of the sort. My friend was running short on options. He was looking for someone to go guarantor on the mortgage. This would mean that the person who signed as a guarantor on the mortgage would be liable for the mortgage repayments in the event that my friend could not make the mortgage repayments.

To be honest I struggled for a long time with this situation. What was I to do? I was caught between wanting to help a friend in need and not wanting to put myself in a position that could damage my future. Imagine the scenario – I go guarantor on the mortgage for my friend, now my friend manages to make the mortgage payments for six months. Okay, so far so good – it seems to be working out ok and my position as a good friend is assured. Now imagine that my friend gets laid off or his debts continue to grow and are too much for him to handle? What then? The problem then is that if my friend can’t make the mortgage repayments then it falls to me to make them for him. I have debt burden myself so I sincerely doubt that I could take on someone else’s mortgage repayments on top of the loan repayments I have to make each month myself.

As you can see it was a tough position to be in. I was angry at my friend for putting me in this position and trying to leverage our friendship so that I could solve his problems. I wasn’t happy about it at all. I wasn’t happy about the way it was making me feel and the way it had infected our friendship. You see that’s the thing about debt in all its ugly forms. If you are in debt and are struggling to cope with your debts then every single aspect of your life is view through the glasses of debt. Every decision you make is clouded by debt. You are no longer prepared to take risks like finding and starting a new and better job.

It was situations like this that made me mad enough to start this website. I get really angry when I see people beaten down by debt. They sleep walk right into a mountain of debt and wake up one day wishing it was all a bad dream. Some get depressed and end up on anti-depressants. Couples with debt problems begin to argue over money. The debt has made them afraid of losing what material things they have. Little realising that if they continue they way they are they will end up in a vicious cycle of spending to maintain a certain lifestyle and using debt to fund it. I’ve heard stories of couples staying together (even though they hated each other) simply because they could not afford to take the negative equity hit on their house. You see debt like this is oppressive – its slavery.

Getting back to the situation I had with my friend. He was getting desperate as the bank was looking for a guarantor and his ex-girlfriend wanted her name off the mortgage fast. So I took the middle ground – I really wanted to help this guy, after all he’s a friend and what use would I be as a friend if I couldn’t help him in his hour of need. On the other hand I didn’t want to be pulled down by his mistake – if things got a little worse for him then I would be dragged into his black hole of debt. Not a place I wanted to go. So here is what I proposed to him and how I proposed it to him.

“I will go as guarantor on your mortgage for the period of six months if you satisfy the following criteria.

1. Get a reality check – I want you calculate exactly how much you owe and to whom you owe it. Then I want you to calculate exactly how much you are repaying in loans each month.

2. Calculate the absolute minimum that you can realistically live on each month – so cover the basics only, mortgage, food, transport and health insurance.

3. Take a look around your house and life and sell everything that you do not need – everything. Use this extra cash to pay down your credit card debt.

4. Once the first three steps are completed I want you to set aside an additional 5% of your net income each month and add this amount to the monthly repayments you make on your smallest loan. Once you have paid down this loan take the amount you were repaying on the loan along with the additional 5% and add it to the next smallest loan. Continue in this fashion.

5. Cut up all your credit cards and operate only with debit cards or cash.

6. Create a daily/weekly/monthly budget.”

I said to my friend that I would go guarantor for six months to give him breathing space but I wanted him to change his spending habits. After the six months were up I would extend it for another year if he met the criteria I outlined above.

To the casual observer the terms outlined above may seem a bit extreme – some may argue that I should have simply gone ahead and signed for the mortgage and to hell with the consequences. He’s a friend goddamn it! My argument is this – it was this kind of attitude that got us into debt in the first place and I’ll be damned if I’m going back there. I’ve had too many sleepless nights for me to go back to drowning in debt.

So this is how it turned out. My friend said I was being unreasonable. I explained in detail the reasons why I wanted him to meet the criteria. It was for his own good and I had his best interests at heart. He didn’t take too kindly to my offer of help on condition. He got very offended. He said I was treating him like a child and in certain respects he was right. I was trying to control his spending behaviour but only because I could see exactly where he was going to run into financial trouble.

I tried to remain calm and kept repeating my reasons but as I said before when people are in a lot of financial trouble and the bank is calling it is hard for them to be logical. It did become a bit ridiculous and my friend became very upset. He couldn’t see why I was being so stubborn. I pointed out that I felt it was unfair for him to use emotional blackmail on me just so I could click my fingers and his problems would be solved. Well at least solved until the next debt threat!

The conversation went on in this manner for a while before my friend just got up and left in anger. We didn’t speak for weeks. I sent him an email to see how he was getting on and he called me. We spoke for a while and he apologised for storming off. I asked about the mortgage and he told me that his brother in law had gone guarantor.

We pretty much left it at that. We have met up and spoken since but our friendship is damaged probably beyond repair.

Part of me wonders whether the right thing to do was nothing – to make up some wishy washy excuse as to why I couldn’t go guarantor and leave him to his own devices. I don’t know what would have happened but to be honest I think the best thing that could have happened to him was to lose his house – or come close enough to losing it that he changed his ways. Now before you start typing that email of bile to me let me explain. I wanted my friend to realise how dangerous debt can be if used without thinking. I could see from his “I want it all and I want it now” lifestyle that he was using getting in deeper and deeper in debt. I wanted to help him realise this but he did not want to listen and certainly not to me. Who was I to tell him he had a problem? If the sheriff had come calling to take his stuff away would that have been enough?

Probably not.

Till Debt Do Us Part – Pay off debt fast