When Debt Turns To Despair

The credit crunch is driving more and more people into debt. So what are the warning signs you need to watch out for? And how do you cope?

Sadly, the terrible impact of the credit crunch is becoming more and more obvious.

Several stories were published this week about desperate debtors who have committed suicide (not to mention murder) after failing to see a way out of their financial troubles. And those are just the people we hear about. There may be many other thousands - if not millions - of people who are suffering in silence.

The Samaritans, for instance, tell me that the number of calls to their city branches have risen significantly in recent months, as even high earners (and the bonus-loving Cityboys who got us into this mess) feel the pinch.

Meanwhile, debt charity Credit Action claims the debt problems people call in about are much more serious than they were a year ago. In fact, I'm told some callers are in such a state of despair that they have called up to get advice while holding a loaded pistol in their hands.

Unless you're on the frontline, like these charities, it's all too easy to read statistics like "repossessions by mortgage lenders are up 48% in the last year" or "applications by homeowners for insolvency increased by 17% in 2008", and not see the thousands of personal, human tragedies they involve.

The warning signs

Anyone can fall into debt. The question is, at what point does it become a serious problem?

According to our recent podcast, The Truth About Debt, the key warning sign that you are at risk of falling into serious debt problems is the discovery that you are borrowing just to keep on top of your monthly expenses. In other words, you are paying for regular outgoings using credit cards or an overdraft because you are exceeding your income every month.

The moment this starts to happen, it is wise to seek help. First of all, fill in this statement of affairs calculator. This will help you to see more clearly where your problems lie. Then, read 76 Foolish Ways to Save Money to see if you can cut down your expenses in any way. You could also consult Fools on our discussion boards to get tips on Living Below Your Means, or read this post  by a fellow Fool.

But what if cutting back is simply not possible? What if the situation is already quite serious, and you are being hassled by creditors or mortgage lenders? What should you do then?

Get help

First of all, be careful about who seek help from. Many companies will try to take advantage of you while you are in this desperate situation. For example, some unscrupulous insolvency practitioners may try to convince you to enter into an expensive and unsuitable insolvency agreement. Similarly, if you're a homeowner who is facing repossession, you may also be offered the chance to sell your home and rent it back. This is an extremely dangerous way to get out of debt.

There are, however, three really good places to go to in order to get help. You can do all three simultaneously - and none of them will cost you a penny:

1)      Post on our Dealing With Debt discussion board (read this message to find out how to do it). Over the years, many thousands of people have been helped by the extremely knowledgeable and kind Fools who post on these boards: there's at least one bailiff posting there, many other posters have  learned the hard way from their own mistakes. For example, this is a really useful post on harassment by debt collection agencies, and this is a heart-wrenching post on why suicide is not the answer. You can find some more really useful posts here.*

2)      Consult a debt charity. I recommend:

• The Consumer Credit Counselling Service
• Christians Against Poverty (NB: you don't have to be a Christian to consult them!)
• National Debtline
• Citizens Advice Bureau (but beware there is a long waiting list)

The Consumer Credit Counselling Service, at least, should be able to provide practical help as well as advice. They can speak to your creditors on your behalf and try to negotiate a solution for you, so that you can make affordable payments and still pay off your debt. If you are struggling with your mortgage, for example, they can speak to your lender and ask them whether you can reduce our payments to a more affordable level or take a payment holiday. Most importantly, they will sit down with you and go through everything you owe and explain all the jargon.

Like many of the Fools on our Dealing With Debt board, they're on your side, and they are experienced at dealing with the highly complex and stressful situation you are in. And remember, their advice is 100% free.

3)      If you are deeply in debt, you are no doubt under a lot of stress - and it is often this stress which drives people to despair. If you feel depressed, don't suffer alone. Contact counselling charities Mind or Relate for practical advice on how to deal with the emotional fall-out of debt. Don't ignore it or bury your head in the sand, because inevitably this will only make the situation worse.

It's not easy to face up to debt, and sadly there's no magic button you can press to make it go away. But there is always an answer to any debt problem and that answer should never be suicide. So hang on in there. And remember, you're not alone. Your fellow Fools can help you, debt charities can help you and, most importantly of course, you can help yourself. Just don't give up hope!

*Thanks very much to Fools Millsee, SelfDoIt and everyone else whose posts I have linked to. 

More:Listen to our podcast The Truth About Debt | Visit our Dealing With Debt discussion board!