Debt Consolidation

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altered-ego
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#1937907 12-Jan-2018 23:55

nakedmolerat: why not family loan???

Same reason not to be a guarantor? See quote below (emphasis mine)

tdgeek: I agree with OP, been there done that. Its "just" family, I can delay, its "just" family, not like the real life where they hunt you down. Then you end up with family issues, all because you helped. The OP's approach is best, if most debts are high interest, and its too hard to manage them now due to that, to try and get soem means to spread it out. But history and current situation will count against bank help I feel. He is a number and they have criteria

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altered-ego
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#1937909 13-Jan-2018 00:20

networkn: ... So my nephew seems to have gotten himself into a pickle with borrowing more than he should of ...
He has some loans at some crazy rates, which will likely cripple him without finding a way to pay them off. ...

High interest rates are (imo) the worst. Try and get a low interest rate credit card, even if it is only for a portion of the debt.
Remove fees from the equation in every possible way; i.e no late payments, bank accounts that have no monthly costs, disable paper statements
Find additional income sources; hold a garage sale, offer techie repair services, find a 2nd and 3rd job (I believe the 2nd job is also taxed less)

networkn: ... as quite a few young people do these days. ...

This to me sounds like the negative thought train that so many of us are on. Woe is me, this happens to all youngsters, life is so hard & unfair. Financial literacy must be taught much earlier at home & at school. Try to change your mind set. This situation is temporary and can be changed for the better. We can work out a plan and come out better on the other side thanks to learning from our mistakes. Regularly review your progress and visualise a tangible goal. Educate yourself, read books, listen to podcasts, practice & reward yourself for your successes

Radical Personal Finance (Ep 508): Three ways to save money

Buy it cheaper
Make it last longer
Use it less

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KiwiSurfer

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#1937912 13-Jan-2018 00:46

IcI:

Find additional income sources; hold a garage sale, offer techie repair services, find a 2nd and 3rd job (I believe the 2nd job is also taxed less)

Secondary income is taxed higher than your primary income. You can claim a refund at the end of the tax year though.

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#1937916 13-Jan-2018 06:30

These amounts are too low to consider bankruptcy or No Asset Procedure. What percentage of his net pay is going servicing his debt? That is the only way I can see out of it.

Is it possible to sell the car, ride a bike/bus to work? Can he go prepay on his mobile phone plan? Optimistically would a good price for the car get close to clearing all the debt?

I used to hate debt consolidations when I was doing consumer finance and mortgage lending, because people would get one, and go, oh look only one payment, I have some spare cash. Then after awhile more HPs.

We used them as an instant decline.

nickb800

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#1937951 13-Jan-2018 10:17

KiwiSurfer:
IcI:

Find additional income sources; hold a garage sale, offer techie repair services, find a 2nd and 3rd job (I believe the 2nd job is also taxed less)

Secondary income is taxed higher than your primary income. You can claim a refund at the end of the tax year though.

2nd and 3rd jobs will push you further up the marginal tax rate ladder. Yes there are overs (secondary tax) and unders (wash out at end of tax year by requesting personal tax summary - and hopefully getting a refund) but you will on average pay a higher tax rate on 2nd and 3rd jobs (I mean after it washes out at the end of the year).

E.g. first job is $48k per year, this will be taxed at 10.5% (for the first $14k) and 17.5% (for the remainder). Second job might be $14k per year, this will be entirely taxed at 30%.

Gets even worse if you have student loan repayments - you can easily loose half of your income before it gets 'in your hand'. Certainly worth considering before taking on extra work if it carries high associated costs (e.g. childcare, travel, clothing). Benefits/Working for families can make exaggerate this even further.

sleepy

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#1937959 13-Jan-2018 10:35

Hi not sure if you have tried the Heartland bank but they were advertising in the paper for debt consolidation

www.openforyou.co.nz

Not sure if this is possible but can his wages be paid to someone else and then given a allowance to live on while debts paid off

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#1937961 13-Jan-2018 10:44

nakedmolerat: why not family loan???

I have loaned family significant sums of money over the years. It usually ends in misery, mostly for us, either not paid back or damaging the relationship because people come to resent you, even though you are doing them a favour.

We have helped this lad out a number of times, but it's time he learns that in the real world you can't just ask mummy and daddy bank (or uncle bank) to bail you out all the time.

I am happy to help him find HIS OWN WAY out of this mess, using facilities he has access to if I wasn't here.

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#1937994 13-Jan-2018 10:53

networkn:

I am pretty surprised that there aren't any reputable lenders prepared to take this debt on, honestly. He has a decent income, and consolidated, his debt is very manageable.

We will contact the CAP and see what they suggest.

You've made three possible significant but well-meaning mistakes here. The first is assuming that ability to service a loan is everything -- it's not. In this day and age, ability to repay a debt based on applicant's current income and situation is only a part (in some cases, a very small part of the whole chain of considerations). Banks have the ability to access, aggregate and analyse a whole lot of data and the initial decision-making is almost always algorithm based. An initial rejection is hardly a death-knell. However, on personal loans, speaking as someone with recent (less than 2 years ago) experience of working in senior risk/compliance for a Big Five bank, it was certainly what I observed to be standard practice to largely decline to reconsider any initial rejections of people whose credit reports show a large number of recent inquiries, borrowings from marginal lenders, and HPs. Banks aren't just concerned with ability to service a loan. They don't want the risk of having to deal with the person's hardship applications (more on this later). Research clearly tell the banks that people of this type tend to struggle much more than the average population in holding on to their jobs and generally organise their own lives to not swing from one disaster to another.

Your second mistake is to assume that his car loan isn't a huge problem. If he can get sell the car and then make a large dent on the more urgent loans, his life is instantly better. Remember, sometimes despite people's earnest efforts to help, there may be no improvement to his situation.

What your nephew needs to do is gather up all the applications/paperwork relating to all his loans, carefully set out a workable and realistic budget (I would, for example, question the proposition of anyone living in Auckland needing a car for transport to work unless they work odd hours and shifts), and make an appointment with a CAB or a NGO that specialises in providing budget advice. They will assess his case to see if he qualifies for hardship relief under the Credit Contracts Consumer Finance Act which by default only requires a lender to give payment holidays or reduce each payment amount by extending the terms of the loan. But what's powerful about the CCCFA is that if the loans were taken out after the end of June 2015, the CCCFA provisions requiring lenders to comply with responsible lending principles (including making reasonable inquiries on borrower's ability to pay, not acting oppressively, and making full disclosures regarding the terms of the loan) apply in full. If the lenders have in any way fallen short and your nephew has a professional's support in that view, they will likely come to the party regarding reduction of interest or more to prevent a complaint to the Commerce Commission.

Your third mistake is to assume that giving direct financial assistance to your nephew is just spoiling him. If his situation is bad enough (I don't know) that nothing other than the family helping will do, I think you should help if it is affordable but on two conditions: (1) make him agree to give someone trustworthy an irrevocable power of attorney to operate his bank account until his debts to his family are discharged and basically give him a weekly cash allowance to live on and (2) make it a condition of any help that he attends budget advice and financial literacy courses. Allowing people's lives to spiral out of control isn't always the best way to teach someone a lesson.

As for some of the stupid trolls here joking about the OP's nephew committing burglaries etc, please just grow up.

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#1937999 13-Jan-2018 10:55

networkn:

$10K debt isn't a big deal honestly, it's the interest rates that are the major issue.

I think you're chasing a red herring with regards to the high interest rate.

$10k at 30% p.a. over 2 years is $128 a week. At 15% it's $111 per week - a $17 difference.

You say he's got a good income - in which case I would think $17 a week shouldn't make or break him.

Debt consolidation is good to make it simple and manageable but for smaller amounts it doesn't save much money by the time you add in the other costs (loan fees, repayment insurance etc...)

Sometimes it's better just to roll the sleeves up, cut all expenses for a month or two and get on top of the debt then work on a plan to clear them one by one (starting with the most expensive ones first).

If multiple credit cards are involved then focus on one, build up some room and do a balance transfer, then focus on another card and so on.

dejadeadnz

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#1938005 13-Jan-2018 11:05

sleepy:

Hi not sure if you have tried the Heartland bank but they were advertising in the paper for debt consolidation

www.openforyou.co.nz

Not sure if this is possible but can his wages be paid to someone else and then given a allowance to live on while debts paid off

The second suggestion is potentially excellent. But the OP's nephew needs to stop making further credit inquiries. At a guess, if even the peer-to-peer lenders won't touch him at what can be exorbitant interest rates, his credit score is likely well below 300 or even 200. He will just get declined by banks without the support of an NGO or someone who's financially literate showing that the kid has a plan to repay the loan. And having lots of declines on your credit report is something that he will need to live with for the next 5 years. He need to go and take some serious, professional advice on what to do before doing more lender-hopping.

networkn

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#1938006 13-Jan-2018 11:05

dejadeadnz:

networkn:

I am pretty surprised that there aren't any reputable lenders prepared to take this debt on, honestly. He has a decent income, and consolidated, his debt is very manageable.

We will contact the CAP and see what they suggest.

You've made three possible significant but well-meaning mistakes here. The first is assuming that ability to service a loan is everything -- it's not. In this day and age, ability to repay a debt based on applicant's current income and situation is only a part (in some cases, a very small part of the whole chain of considerations). Banks have the ability to access, aggregate and analyse a whole lot of data and the initial decision-making is almost always algorithm based. An initial rejection is hardly a death-knell. However, on personal loans, speaking as someone with recent (less than 2 years ago) experience of working in senior risk/compliance for a Big Five bank, it was certainly what I observed to be standard practice to largely decline to reconsider any initial rejections of people whose credit reports show a large number of recent inquiries, borrowings from marginal lenders, and HPs. Banks aren't just concerned with ability to service a loan. They don't want the risk of having to deal with the person's hardship applications (more on this later). Research clearly tell the banks that people of this type tend to struggle much more than the average population in holding on to their jobs and generally organise their own lives to not swing from one disaster to another.

Your second mistake is to assume that his car loan isn't a huge problem. If he can get sell the car and then make a large dent on the more urgent loans, his life is instantly better. Remember, sometimes despite people's earnest efforts to help, there may be no improvement to his situation.

What your nephew needs to do is gather up all the applications/paperwork relating to all his loans, carefully set out a workable and realistic budget (I would, for example, question the proposition of anyone living in Auckland needing a car for transport to work unless they work odd hours and shifts), and make an appointment with a CAB or a NGO that specialises in providing budget advice. They will assess his case to see if he qualifies for hardship relief under the Credit Contracts Consumer Finance Act which by default only requires a lender to give payment holidays or reduce each payment amount by extending the terms of the loan. But what's powerful about the CCCFA is that if the loans were taken out after the end of June 2015, the CCCFA provisions requiring lenders to comply with responsible lending principles (including making reasonable inquiries on borrower's ability to pay, not acting oppressively, and making full disclosures regarding the terms of the loan) apply in full. If the lenders have in any way fallen short and your nephew has a professional's support in that view, they will likely come to the party regarding reduction of interest or more to prevent a complaint to the Commerce Commission.

Your third mistake is to assume that giving direct financial assistance to your nephew is just spoiling him. If his situation is bad enough (I don't know) that nothing other than the family helping will do, I think you should help if it is affordable but on two conditions: (1) make him agree to give someone trustworthy an irrevocable power of attorney to operate his bank account until his debts to his family are discharged and basically give him a weekly cash allowance to live on and (2) make it a condition of any help that he attends budget advice and financial literacy courses. Allowing people's lives to spiral out of control isn't always the best way to teach someone a lesson.

As for some of the stupid trolls here joking about the OP's nephew committing burglaries etc, please just grow up.

Thank you. I'll review these options and see what might be worth considering. I am very much less inclined to take on his debt personally even with power of attorney.

I think CAPNZ handles a lot of what you are talking about, in the first instance, I think it's worth him starting with that. It includes money management courses and people professional trained to help negotiate his debt with his lenders.

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#1938007 13-Jan-2018 11:13

I have removed the mentions of "burglary" because that's just stupid bullshit that don't have space here.

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#1938058 13-Jan-2018 12:23

@networkn have you investigated the full details around the car loan? As I remember a friend buying a car for $8K. But the loan contract required at least 4 different insurance policies, which were all paid as a lump sum and added to the loan contract. Total amount borrowed was approx $14K. It wasn't an option to pay the insurance weekly or monthly, which would avoid having to pay interest on money to cover insurance on the later stages of the loan contract.

When he was able to pay the loan off early, a bonus was being able to cancel those policies. And get partial refunds due to unused term of cover. And only needing insurance to protect his own interests. And not to protect the interests of a finance company.

Even if he is telling you the truth that the car cost $10K. The car loan might be for far more than 10K.

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#1938071 13-Jan-2018 12:41

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networkn:

$10K debt isn't a big deal honestly, it's the interest rates that are the major issue.

I think you're chasing a red herring with regards to the high interest rate.

$10k at 30% p.a. over 2 years is $128 a week. At 15% it's $111 per week - a $17 difference.

You say he's got a good income - in which case I would think $17 a week shouldn't make or break him.

Debt consolidation is good to make it simple and manageable but for smaller amounts it doesn't save much money by the time you add in the other costs (loan fees, repayment insurance etc...)

Sometimes it's better just to roll the sleeves up, cut all expenses for a month or two and get on top of the debt then work on a plan to clear them one by one (starting with the most expensive ones first).

If multiple credit cards are involved then focus on one, build up some room and do a balance transfer, then focus on another card and so on.

I tend to agree. The lack of creditworthiness makes it very difficult.

OP, how bad is it?

Can he service things right now, even if it leaves little spare cash?

Is it at repossession level, or third late notice, or just reminders?

Its about cashflow right now. Can he ask for a short holiday from some of these, and target the lower two that have less owing, and ideally higher monthly payments? In an effort to improve cashflow short term that can then be applied to the others. And he needs to think positive and set aside a period of frugal living. To help that, the frugal savings he can make go directly to a debt, to get some emotional benefit, and to reduce the effect of going it tough. Light at the end of the tunnel type of thing.

Of course, check CAP and the good advice our resident lawyer gave.

networkn

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#1938095 13-Jan-2018 13:35

He isn't late on the car payments, he loves the car, and I could imagine him being extremely resistant to giving it up. I don't have very specific details other than than what's owed and to who, and what his income level is.

As I understand it, some of the penalty interest is in the dozens of percent and his outgoings outstrip his income. I am trying to do this remotely with him and dealing with the normal teenage behaviours and trying to also take into account that clamping things too tight is unlikely to be unsustainable for him.

I am due to have another conversation with him later today. I have said I think CAP is his best bet, but I can't make him do anything. He will need to make some choices and sacrifices as part of the consequences of his actions.

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