Oran Hall | Seeking a debt solution

QUESTION: A few years ago, I went to the bank and took a loan with the plan to use the money towards building on my mother’s house so that I could stop paying rent. Unfortunately, things never worked out as planned and the money ended up being spent elsewhere. Although I have tried to pay my debt, there were times when I was not able to because I became unemployed but made contact with the bank about my situation at such times. The interruptions in servicing the loan caused the monthly payments to increase upon resumption, but I ensured that funds were in my account to meet the payments when I had an income though that left little to pay my living expenses.

Earlier this year, when I found myself unable to make payments due to unemployment, the bank passed the loan to a collections agency. I spoke to several people at the bank and the collections agency about my situation and pleaded with them for some form of assistance or suggestions regarding how best I could deal with this issue but to no avail. I’m now being threatened to be taken to court and for bailiff action to be taken against me if I don’t pay, but I am not able to do so now.

– G.M.

FINANCIAL ADVISER: I sense your desperation from your detailed account, which I had to summarise. From your account, you seem willing to pay and you have generally kept the bank informed about your circumstances. The bank has done what it needs to do to recover the money you borrowed.

Being able to generate income to pay your debt is the key to solving your problem.

When banks lend, they do what they can to collect. When the borrowers don’t pay, for whatever reason, they refer the matter to a collections agency after they have reached the limit of trying to get payment. The agency charges a fee for it services. That is how it earns income.

Although it generally indicates to the delinquent borrower that it requires full payment, the collections agency may choose to allow payment in a limited number of instalments. This concession is good for it as it gets to earn an income, and it is good for the beleaguered debtor, who gets a better chance to clear the debt.

If the debtor begins to pay, the lending institution may choose to make some concessions to the borrower upon the representation of the collections agency. As a last resort, though, the borrower may be brought before the court and may ultimately spend time in debtor’s jail if the debt is not paid. I understand that this hardly happens.

Lending institutions want their customers to get back on their feet for they ideally want more business. Hence, they tend to take into consideration the circumstances of each case when making decisions. Nonetheless, a borrower who has problems servicing a debt carries the long-term burden of an adverse credit score, which can affect the ability to borrow in the future.

That you have mentioned the bailiff suggests that the debt is attached to an asset. Bailiffs only get paid when they repossess and sell assets to recover money owed, so it is important to secure your assets by paying the debt.

Your best solution is to get a job fast but time is against you, and you seem to have a history of not keeping jobs for long. When the dust settles, consider training to improve your employability.

Readers, debt can make a real difference in your lives – good or bad. It can balloon very sharply when it is not serviced well. Here is an example. A reader wrote that he borrowed $1.8 million from a commercial bank in 2019. He now owes $8.5 million.

He mentioned that he has been in contact with the bank over the years telling them of his inability to pay and that the debt has been increasing by $100,000 each month. Now, the collector has called, so he needs to answer. Will anything come out of it? I don’t know.

What I can say is this: Be careful about borrowing for what can go wrong will go wrong. When you borrow, be careful how you use the money. If you have to sell an asset to pay your debt, do so; the asset can be replaced later.

Remember that lenders collect what they lend and that you need a good credit score to be able to borrow easily, so pay your debt in full and on time.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com