Getting into debt is a long downward spiral that can seemingly have no end. One of my closest friends Mike fell deep into this spiral whilst we lived together in London. I witnessed him spend money he didn’t have, max out credit cards and borrow payday loans. But I also saw him bounce back, pay off all his loans and begin a debt-free life.
Mike was kind enough to answer my questions about how he did this. We both hope it will help someone reading this…
What do you think were the leading contributors to your debt?
”It’s easy to blame “irresponsible lending” (which is still a massive problem, and was even worse at the time), but obviously it was equally down to “irresponsible borrowing” on my part. It’s easy to accept a £2,000, interest-free overdraft early on in your student life, knowing you won’t have to pay it off until a year after graduation. But £2,000 is more than most graduates can afford, and the banks know that – it isn’t long before all that free money turns into a big, scary debt looming on the horizon.
And payday loans! I don’t buy into the theory that payday lenders are evil; for certain people, in certain situations, they can be really helpful. But if you’re not earning much, and you borrow £50 to cover that unexpected bill a week before payday, it’s easy to forget you’ll be starting the next month £60 down. I ended up in a sort of spiral, where I had to borrow more every month to cover the hole left by the previous month’s loan – at my lowest point I was taking out payday loans straight after I got paid, and borrowing almost as much as I was earning.” – Mike
What was the turning point where you knew you needed help?
”I sort of always knew, right from the first debt. I never didn’t have that voice saying, “This overdraft / credit card / loan / finance agreement might not be a great idea.” But even when the debts are piling up, it’s easy to bury your head in the sand and ignore them, as long as you’re still scraping by. Plus I felt quite ashamed of my debts – it was easier to worry in bed at night than to deal with it out in the open.
The real tipping point was when I looked at my budget and realised I literally couldn’t afford to stay in London, in my flat, for another month. I got the OK to move back in with my parents and handed in my notice at work a few hours later, and got out before things got even more serious.” – Mike
How did StepChange help you? What did they set up?
”StepChange have been absolutely brilliant. First of all they’re a charity, so you know the advice they’re giving you is independent and honest – I always felt weird about asking my banks and creditors for help, knowing their whole reason for existing is to make money out of me.
I didn’t have any income after moving back home, so StepChange set me up a Token Payment Plan, where I paid £1 per debt per month until I’d settled into a job. It’s not a long-term solution, but it’s enough to show your creditors you’re being responsible, and get them off your back. Even better, StepChange act as a middleman between you and your creditors – they fight your corner for you, and do their best to get any interest and charges frozen. Whenever I received a scary-looking letter from a collection agency, I forwarded it to StepChange, and they helped me make sense of it.
Once I’d found work, I moved onto a Debt Management Plan. StepChanged helped me draw up a sensible monthly budget, figured out what I could realistically afford to pay back, and sent my offer to my creditors. I paid £152 a month for about two years – it was slow progress, but it meant I could chip away at my debts without getting overwhelmed.
And those aren’t the only two solutions StepChange offer, by the way.” – Mike
During recovery what were the biggest changes you had to make in your life?
”The biggest adjustment was going from being completely independent, and having free reign of a big city, to being back in a rural town with my parents.
But on a positive note, I’ve learned how to live with less. I sold most of my stuff before leaving London, and I haven’t rushed to buy it all back.
Nowadays I don’t spend money on stuff unless I really want or need it.” – Mike
How long did it take you to pay off the debt and how was your quality of life during this time?
”It took about three and a half years to pay everything off. Honestly, my quality of life has been up and down – money trouble is quite a stressful, traumatic thing to recover from (you can even have debt-related PTSD!) and it’s never easy to move away from your home and your friends.
But having the creditors and the collection agencies off my back has meant, even though I’m only just starting to feel better off, I’ve been able to relax and enjoy life more, without worrying all the time.” – Mike
What budget tips for continuing a social / dating life did you pick up and incorporate whilst you were paying off the debt?
”It hasn’t been easy – I’ve been with my boyfriend for about two years, and he’s had to shoulder a lot of the burden when it comes to day trips, meals out, and holidays, otherwise we wouldn’t have been able to do anything. But he knows it’s not forever, and I do treat him when I can! The same for you, when we’ve had days out together.
I’ve learned to weigh up which things are most important to me, knowing that if I treat myself now, I’ll have to take something out of my budget later in the month. Do I want to go for a nice day out, or do I want the new game that’s coming out? Or if I really want both, is there a way to make one of them cheaper? I’m getting really good at shopping around!” – Mike
When did you make your final payment and how do you now feel?
”I made my final payment a couple of days ago, but it honestly hasn’t hit me yet. I think next time I get paid, when I don’t immediately have to write £152 off my budget… that’ll be what makes me sit back and go, “Huh, I’m actually doing pretty well.” – Mike
What are the biggest changes in your life post-debt?
”It’s strange, but when you’re recovering from debts, it’s almost like your life is “paused”. You still get to do the basics, but you can’t make any big changes to your life – you can’t move house, and even changing jobs can be scary without a financial safety net to tide you over until the first paycheque!
Now I’m out of debt, I can start moving forward again, get a better-paying job, and find somewhere to live with my boyfriend. Suddenly there are loads of possibilities, and it’s really exciting.” – Mike
What are you going to do with the extra money per month now?
”Honestly, right now I’m relieved to have some extra cash in time for Christmas shopping season! That’s a big load off my mind. In the new year, I’ll probably use some of it to live a little more comfortably, and save what’s left. I’ve never been able to save before; it’ll be nice to build up a bit of a safety net!” – Mike
If you think you could benefit from StepChange’s help then visit their website here or call them on 0800 138 1111 (Mon-Fri 8am-8pm, Sat 8am-4pm).