Debt Consolidation

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Reply # 1938863 15-Jan-2018 08:50

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I've furnished the lad with the information and firmly stated I'll not bail him out. I suspect he wanted the easy way out, and I was happy to help him getting with a consolidation loan from an institution, but since that isn't going to happen, his option is self-management using the snowball method, or CAP, which he doesn't seem keen on for the reasons touched on above. I've told him that CAP is his best long term solution and he should be prepared to make some sacrifices.

He is a kid who doesn't handle adversity that well, and is always keen on the quick solution, but I truly don't think he understood the consequences of his debt management and the calling lots of places asking for lots of loans. Together it makes for an unpleasant situation to find himself in.

I'll update once I have more information.

Thank you to those of you who have provided constructive advice and feedback. Having run a business and managed finance for nearly 20 years reasonably well, it was news to me that calling around asking for money would count against you, but then I rarely if ever, finance things other than perhaps a car, or our mortgage.

kotuku4

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Reply # 1938987 15-Jan-2018 12:01

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I have found this book a usefull read, whenever I feel a little lost.

Also sorted.org.nz has some useful tools and advice.

The Richest Man in Babylon is a book by George Samuel Clason that dispenses financial advice through a collection of parables set in ancient Babylon. Through their experiences in business and managing household finance, the characters in the parables learn simple lessons in financial wisdom. Originally a series of separate informational pamphlets distributed by banks and insurance companies, the pamphlets were bound together and published in book form in 1926.

It sounds like your nephews case is fairly serious, and I second the independant budgeting advice or credit union.

networkn

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Reply # 1938999 15-Jan-2018 12:19

kotuku4:

I have found this book a usefull read, whenever I feel a little lost.

Also sorted.org.nz has some useful tools and advice.

The Richest Man in Babylon is a book by George Samuel Clason that dispenses financial advice through a collection of parables set in ancient Babylon. Through their experiences in business and managing household finance, the characters in the parables learn simple lessons in financial wisdom. Originally a series of separate informational pamphlets distributed by banks and insurance companies, the pamphlets were bound together and published in book form in 1926.

It sounds like your nephews case is fairly serious, and I second the independant budgeting advice or credit union.

It's serious in terms of the urgency of it because he waited too long to sort it, but he owes 10K + the Car (10K spread over 5 years), and has take home income of 30K PA so it's hardly insurmountable. The problem is the payments required to each loan are high and if he can get some breathing space it should be pretty sortable. He has to commit to engaging with someone to help him get that breathing space, and secondly, to not incurring more debt.

For me, the money management part of CAP is the most important part.

MikeAqua

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Reply # 1939007 15-Jan-2018 12:39

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It's somewhat ridiculous that to enquire about the interest rate on a possible loan, one has to make a formal application to borrow.

For example if I wanted a loan and asked 6 banks to see who was cheapest, all would require me to make an application. Of course I only want a loan from whoever is lowest cost of borrowing for me, but there are now six recent applications on my credit report.

A cynical person might think that is a system intended to reduce competition, thus artificially buoying interest rates.

Mike

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Reply # 1939021 15-Jan-2018 12:59

kotuku4:

I have found this book a usefull read, whenever I feel a little lost.

The Richest Man in Babylon is a book by George Samuel Clason that dispenses financial advice through a collection of parables set in ancient Babylon. Through their experiences in business and managing household finance, the characters in the parables learn simple lessons in financial wisdom. Originally a series of separate informational pamphlets distributed by banks and insurance companies, the pamphlets were bound together and published in book form in 1926.

My father bought copies of this book for myself and my brother and sister, that's how highly he rated it. I read it at the time and thought that it all made perfect sense.

Batman

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Reply # 1939058 15-Jan-2018 13:53

MikeAqua:
It's somewhat ridiculous that to enquire about the interest rate on a possible loan, one has to make a formal application to borrow.

For example if I wanted a loan and asked 6 banks to see who was cheapest, all would require me to make an application. Of course I only want a loan from whoever is lowest cost of borrowing for me, but there are now six recent applications on my credit report.

A cynical person might think that is a system intended to reduce competition, thus artificially buoying interest rates.

I thought someone mentioned the higher the risk the higher the interest?

MikeAqua

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Reply # 1939071 15-Jan-2018 14:16

Batman:
MikeAqua:

It's somewhat ridiculous that to enquire about the interest rate on a possible loan, one has to make a formal application to borrow.

For example if I wanted a loan and asked 6 banks to see who was cheapest, all would require me to make an application. Of course I only want a loan from whoever is lowest cost of borrowing for me, but there are now six recent applications on my credit report.

A cynical person might think that is a system intended to reduce competition, thus artificially buoying interest rates.

I thought someone mentioned the higher the risk the higher the interest?

Exactly correct. And one risk behaviour is applying for multiple loans - so if you try and use competition to reduce the cost of borrowing, then you may actually increase the interest rate you pay.

As a rough analogy: Imagine a system where the more insurers you got a quote from, the higher the premiums were and/or the lower the likelihood of getting insurance was? It would thwart competition.

Mike

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Reply # 1939410 15-Jan-2018 22:32

Batman:
MikeAqua:

It's somewhat ridiculous that to enquire about the interest rate on a possible loan, one has to make a formal application to borrow.

For example if I wanted a loan and asked 6 banks to see who was cheapest, all would require me to make an application. Of course I only want a loan from whoever is lowest cost of borrowing for me, but there are now six recent applications on my credit report.

A cynical person might think that is a system intended to reduce competition, thus artificially buoying interest rates.

I thought someone mentioned the higher the risk the higher the interest?

But making an enquiry shouldn't nesacarrily mean you are the higher risk...

Paul1977

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Reply # 1939570 16-Jan-2018 09:59

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networkn:

But making an enquiry shouldn't nesacarrily mean you are the higher risk...

I agree, it's stupid how it works.

It's perfectly normal to want to shop around, so enquiring at 4 different places doesn't mean you are trying to take out 4 loans; nor does it mean that when you go with one that you were declined for the other 3. It shows that you are financially responsible by trying to get the best deal.

And even if you are declined, why does that count against you? Whatever reasons you were declined for are still there for other institutions to see, so why does that extra declination add another nail?

People can make enquiries and then wisely decide they can't afford it. They can then get penalised down the track for making those enquiries, even though they in fact made a sensible financial decision.

The only thing that should be considered relevant is your ability to service the loan and your past history of servicing loans.

Sam91

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Reply # 1939621 16-Jan-2018 11:17

Does he know his credit rating? Credit Simple is an easy way to check, and it monitors how it changes overtime. It would be interesting to see how it changes as he makes more enquiries. Also, it will give him an idea of how he compares to people in the same age bracket.

networkn

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Reply # 1939650 16-Jan-2018 11:40

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Sam91:

Does he know his credit rating? Credit Simple is an easy way to check, and it monitors how it changes overtime. It would be interesting to see how it changes as he makes more enquiries. Also, it will give him an idea of how he compares to people in the same age bracket.

Apparently, it's 80. Not sure what the scale is.

So conversations in the last few days have been exercises in frustration. I had hoped that what he had started the conversation with, was the start of him maturing and looking to solve his problems long term, but sadly, it appears he wants an easy solution only. Doesn't want to do a money management course, says he just needs a consolidation loan. He hasn't hit rock bottom yet, and so I have told him, CAP or similar or no more help from me. I am not wasting my time being more invested in his solution than him.

I don't have a response from that yet, but I am not holding my breath.

Sam91

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Reply # 1939655 16-Jan-2018 11:50

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Credit Simple:

Zero score
If you got a score of zero, sad face emoji. Click here to read about zero scores and what to do. Scores can actually run well below zero, but for simplicity’s sake we show it as a zero – otherwise things would just get messy. If you’ve got a zero, you’ve got something bad on your file, such as a payment default, and potentially more than one naughty thing. You might have a court judgement, summons or bankruptcy. But you don’t need something that drastic to push your score down – even late payments look really bad to companies you want to get credit from. You’ve probably also got a few credit enquiries on your file; this looks bad to credit providers too. So make sure you check out your full credit history and ensure what’s on there is correct. Pay back your debts, or at least put a plan together with the credit provider or collection agency handling it to pay it back.

You do also need to adjust your need for credit and spend the next few years building up a good history of not requiring credit. Potentially put some time into establishing a budget, use a prepay mobile, and try to save for items rather than using credit. If you do have credit facilities make sure you pay these on time. As you build up some good credit history your score will change to reflect this. Unfortunately there’s no magic bullet and you will need to work at this over the next two years or more.

So you got a low score: 1 – 300
You’ve probably got payment defaults or other bad data on your file, but you’re saved from having a zero score by also having some positive account payment information (when you do pay your bills on time). If you don’t have defaults or other bad data such as a bankruptcy, then you’ve probably got poor payment history (such as paying late). You could also have a high number of credit enquiries, especially recent ones and for small amounts.

Below average: 300 – 500
If your score is between 300 and 500, you’re slightly below average, but you probably won’t have anything really negative (defaults, behind in your payments, judgements, summons, court writs) on your file. It could be that you are in the younger age bracket which is slightly more risky, and your may have recently applied for one or more smaller credit facilities or to credit providers that offer services higher risk customers.

Middle of the road: 500 – 700
Your score aligns with the majority of people. Smaller things will push the score up, such as your age or having a mortgage. There’s probably not much information available about your credit history, which on a positive means there’s nothing significantly negative. It could also mean that your good history with your current credit provider is not yet being reported (credit reporting bureaus don’t yet have all the information from all of the credit providers).

Wohoo! More than 700
You’re basically magical, and if you’re over 800, you’re a credit unicorn. Scoring above 700 puts you into the high end of the score ranges. Scoring in this range will often be associated with being in the older age groups, having been fairly disciplined with your applications for credit and not making too many applications, having a mortgage and/or an investment property. And constantly paying your accounts on time.

If your score isn’t as high as you think it should be, this could be because your current credit provider isn’t yet actively participating in comprehensive credit reporting – so they aren’t supplying their payment data to credit reporting agencies.

https://www.creditsimple.co.nz/content/learn/#1478754956967-22627a6a-b04f

MikeAqua

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Reply # 1939678 16-Jan-2018 12:28

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networkn:

Apparently, it's 80. Not sure what the scale is.

So conversations in the last few days have been exercises in frustration. I had hoped that what he had started the conversation with, was the start of him maturing and looking to solve his problems long term, but sadly, it appears he wants an easy solution only. Doesn't want to do a money management course, says he just needs a consolidation loan. He hasn't hit rock bottom yet, and so I have told him, CAP or similar or no more help from me. I am not wasting my time being more invested in his solution than him.

I don't have a response from that yet, but I am not holding my breath.

Some kids (we have 4) only learn stuff the hard way unfortunately.

Mike

MurrayM

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Reply # 1939692 16-Jan-2018 13:02

So would someone like me, who has never applied for credit anywhere, and never been in debt or made late payments, have a "perfect" credit rating? Do companies (such as power companies) feed back positive information to your credit history, eg never been late paying?

BTR

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Reply # 1939695 16-Jan-2018 13:09

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MurrayM:

So would someone like me, who has never applied for credit anywhere, and never been in debt or made late payments, have a "perfect" credit rating? Do companies (such as power companies) feed back positive information to your credit history, eg never been late paying?

Yes anyone you have accounts with i.e. Power, telco and so on provide information about your credit rating.

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