The Unkindest Cut

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The answer to personal debt problems, says Professor Steve Worthington of England's Staffordshire University, is to "increase our financial literacy." He thinks schools should be teaching how to look after money and avoid unmanageable debt. "Some people take the view of revolving credit that so long as they can afford the minimum payment each month, they're okay."

Tom Martin, 57, has learned how untrue that can be. That's not his real name; like most people who have succumbed to debt and who are trying to get back on their feet, he requests anonymity. An information technology consultant in the north of England, Martin has been on a slow slide since he borrowed $350 on a Barclaycard in 1972. He says the company kept raising his limit without him asking, but he managed well until 1985, when he started his own computer-aided design business. At the same time he continued working as a salesman, using his credit card for his expenses, which his employer was slow to reimburse.

"If the credit limit is too high," says Martin, "and you find ways of getting up to that limit--which is human nature--it's not easy to control." In l989 he acquired another card, rapidly reaching his limit on that too. He was just able to meet his minimum repayments. Then his business failed. He stumbled along and increased his house mortgage to start another business. Eventually he and his wife had about eight credit cards between them. Their revolving debt climbed to about $17,500--and that didn't count the checking account overdraft for his business. All he could do was drip feed repayments, based on who screamed loudest. "In the end you're inundated with mail, and you fall into the trap of just notopening the bills."

Martin finally approached the Consumer Credit Counselling Service, a charity which helps people with debt problems. As he would probably be able to pay off his debts if they were rescheduled over several years, the cccs agreed to intercede with his creditors. He now pays a set monthly sum that is distributed among them. He has had to sell his house to pay off his business debts, and obtaining another mortgage will be difficult until he can clear his credit rating. His advice to young people thinking of plastic? "Look at the interest rates on the cards. They're diabolical. We have the lowest bank rate for years, and they're around 20%." He hopes to start over again, which is not easy as he approaches 60. "The legacy of debt is a very long one," he warns.