Debt Etiquette (What to do when you find yourself in debt)

Debt Etiquette (What to do when you find yourself in debt)

Admit it, you are in debt. It’s all right, being in debt, in one way or another, is quite normal in today’s world. Gone are the days when items are paid in full (and in cash). Nowadays, people put purchases on credit or get loans to buy bigger and more expensive items such as cars and houses.

Owing money or being in debt, unfortunately, has almost become the norm rather than the exception to the rule. However, this does not give you (or anyone for that matter) an excuse to dig yourself a deeper debt hole, or run away from your obligations. If you owe others: banks, financial institutions, friends, and relatives, money – you have to pay these off.

No, this article will not delve into the ways you can reduce debt. This article will focus more on how you, as a person, should behave when you find yourself in the red (and are having a hard time paying).

Be Honest

The first thing you should do, especially if you are married, is tell your immediate family the situation you are in. They need to know because your repayments will have an impact on the family’s overall spending habits. By being upfront and honest with them, they can understand why you’ve cancelled that trip to Disneyland to another year, and they can adjust their respective lifestyles as well.

Next, talk to your banking adviser and tell them that you’re having trouble meeting repayments, and ask if the bank can present you with options you can consider. There are many ways the bank can help you – they can restructure your mortgage, give you loan to be put against your mortgage, and they can even consolidate your credit card bills into one so you only pay a smaller interest rate.

Then, if you owe friends or relatives money you need to be honest with them too. Just because they are your relatives doesn’t mean you can treat them any differently from lending institutions. If anything, you should be more upfront with them because helping you out financially is neither their job nor their responsibility.

Take the initiative and, based on your cash flow, create a payment plan and present this to them. This will show them that you are sincere about paying off what you owe and give them a chance to adjust their budgets accordingly.

Be Modest

Showing off a brand new car, boasting about your new Louis Vuitton bag, posting pictures of you having a grand holiday in the Bahamas – all when you’re having trouble meeting repayments, or sticking to your payment plan is just plain tacky. No, you don’t have to “look the part” and walk around like a pauper when you’re in debt. Just act normal and don’t brag! Showing off more expensive items while missing payments will give people the wrong impression and will think that you’re still spending irresponsibly.

Why should that matter? That’s none of their business. Maybe so – but put yourself in the shoes of your lenders. How would you feel if someone who owes you money, missed a payment due to some sob story about his financial difficulties, posts pictures of his flash new car on Facebook? Wouldn’t you think – “Hey! He’s got funds to buy a car but not pay me back?!”? You probably would not want to lend him money ever again, right?

Be Careful

Finally, if you’re in the process of paying off a debt, you have to be careful of all your expenditure. Avoid the traps that got you into this “mess” and be aware of money-saving practices. If you know something will happen in the future (ie: birth of your baby, moving to a new house), start saving up for this as early as possible.

Don’t delay setting funds aside until the very last minute. And once you’ve paid everything off, create a “contingency fund”, which you will only access in extreme cases of emergency.

Please also take up to date legal and financial advice from a qualified financial advisor/debt counsellor.