To coincide with the online publication of “Getting Out of Debt and Staying Out” – a book providing advice on managing personal debt – HowTo.co.uk takes a look at how banks manage our debt and the impact it has on society.
‘Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal — that there is no human relation between master and slave.’
Tolstoy
Are you one of the eight million Britons who has found themselves in serious personal debt? Are you concerned about your maxed-out credit cards, mortgage, student loans, bank loans and overdraft? Does this sound like a preamble by some cowboy company to tempt you into consolidating all your debts into one dubious high-interest albatross that will be hovering over you for the rest of your life? Well it’s not, it’s an attempt to understand how we got ourselves into this mess and how we’re suffering from it.
Profiting from debt
Over the last ten years people have been encouraged by their banks to get further into debt with easier-to-obtain credit cards and extended credit limits. Nowadays unsecured personal debt stands at £1.4 billion. Banks make their profits from interest charged (usually between 12% and 20%). If debtors default, as they increasingly have been during this ‘credit crunch’, they will be hounded for extra fines, collection fees and legal costs. These go into the pockets of specialist debt management agencies and local authorities.
Debt is also sold between financial organisations, with involuntary arrangement (IVA) firms especially prospering from this. They negotiate on behalf of bad debtors to settle for lower repayments to the creditor (usually a bank), usually promising to rid 80% of the debt but actually very often only achieving 55%.
The adverse social effects
Since 2004 there have been growing numbers of debt-related suicides, the most vivid of which was the case of Mark McDonald who leapt in front of a train once he’d owed almost £120,000. An unnamed industry executive has called for those banks who lend irresponsibly to be subject to criminal charges especially if their actions can lead to loss of human life. Less serious though still significant problems have been caused by the debt crisis, ranging from depression and alcoholism to entrapment in a life of poverty and crime.
Free will Vs. external influence
Obviously, personal responsibility must be taken into account when managing money, but it is very difficult for people to resist the constant in-your-face promotion of the modern consumer lifestyle. People are persuaded by advertising to to envy and measure themselves up to others and to buy products that promise to boost their sex appeal or self-esteem. Breaking the cycle at an individual level is surely a Herculean task; we need to rethink our priorities as a culture.
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