The risk of falling into debt has always been a major issue among borrowers especially those who are making ends meet. Having no disposable income makes difficult to cope up with an unexpected expenses. According to a report from the National Audit Office, up to 8.3 million people struggle to pay off debts. Credit card spending is the most popular type of borrowing among Brits and almost 80% of them fall into debt as dues quickly mount up. Here is a real case of a couple who fell into credit card debt. This case study also explains how they managed to get out of debt despite low wages.
Joe and Carol had been living in London and taken out a personal loan with a tune of £20,000 to refurbish their home. They have been using it for more than a year. However, they also owed £4,000 direct lenders and they have been receiving constant messages and calls from them. Joe had lost his job and his wife, Carol, took a pay cut. Now they knew that they were in deep water and they had to do something to support themselves financially.
They not only had to fight against their own sense of hopelessness but also the pressure of debt that continued to mount up with each passing day. In the end, they fell to credit cards for making all of their expenses. According to financial experts, having credit cards on the go during economic boom is not a problem as strong income can settle all dues in one attempt, but credit cards show a new role during economic recession. With low wages, Joe and Carol were reliant on credit cards to make ends meet.
How they got out of a growing debt trap
With a personal loan standing in their account along with other short-term loans and credit card bills, they had to quickly analyse their financial condition and figure out how they could get rid of it. Here is what Joe and Carol did.
- Record everyday expenses
They started maintaining a record of all off their expenses. They had a diary in which they recorded every tiny expense from magazine subscriptions to salon cost. Several expenses were put on the back burner such as club memberships. Smoking cost Joe around £500 every month. He reduced it. All expenses like medical insurance, car insurance and home insurance plans were reviewed to switch to a low-cost plan.
- Consulted a debt management company
They had been juggling with all debts and it was hard to pay off them in full. Ultimately, they consulted a debt management company. They reached an agreement with direct lenders to write off some of the credit card and other short-term debts to decide on the full and final settlement. Budgeting helped them to have disposable income amounting to £2,000 that they used to clear a little part of the payment.
- Took out for loans for bad credit
Since their credit score had dropped down, they had no option other than taking out a loans for bad credit with no guarantor to pay off other dues. The repayment length of the loan was 24 months, so it was easy to manage the debt.
Joe carried on the hunt for a new job. He landed a job after three months of his layoff and in the meantime, he tried to earn money with side gigs. Six months after taking out the bad credit loan, the economic situation improved and Carol’s company suspended her wage reduction application.
The couple used bad credit loans for settling all credit card dues, overdue short-term debts and half of the personal loan. In the beginning, the lender allowed them to pay down smaller instalment every month unless Joe landed a new job and the size of instalment increases so that they could pay the whole of the debt within the term without bearing the burden.