Here we discuss the different types of debts, and how you can legally remove your responsibilities under them.
There are 2 main types of debt:
- This type of debt has something attached that can be taken away if you fail to pay the debt. Typical examples are your home (mortgage) or your car.
- This type of debt has nothing attached that can be taken away if you fail to pay the debt. Typical examples are unsecured loans, credit cards, overdrafts, bills etc. etc.
If either of these types of debt do into arrears (you miss payments). They affect your credit rating and your ability to get future debt.
Unlike the US and other countries. In the ROI, your credit rating is reset if there has been no activity on your record for 5 years. That means:
- If you have not applied for and used loans.
- There have been no repayments because your debt is now repaid or otherwise written off.
- There have been no attempts made to collect.
- Every 5 years, whatever was on your record falls off the end of it.
This can be a good thing if you have a very bad credit rating. It can also be a very bad thing. Especially if you have worked hard to build your credit rating but for whatever reason failed to use it by getting further loans.
Aside from affecting your credit rating, unsecured debts cannot be collected upon by their very nature. That is the risk the lender takes by lending without security. For this reason alone it is usually a very bad idea to “consolidate” your unsecured debt into a secured debt. For example, to take 5 credit card debts and consolidate them into your mortgage. Unless you really know what you are doing, as you are losing the primary benefit of having an unsecured debt.
Debt collectors and other financial institutions lending unsecured debts may threaten to take you to court. But in reality, if they be repaid, they have no recourse to courts. Unsecured debt providers must jump through all sorts of legal hoops to provide debt at high rates of interest to the public. The responsibility is on them to ensure you have the ability to repay. Also that your circumstances are unlikely to change during the loan period.
Financial Brainwave #1:
If you don’t care about your credit rating. Which in ROI you really shouldn’t if you are young. You can use this to get, what is effectively free money. Simply by building your credit rating for a year or two. Obtaining as much credit as you can. Maxing out the cards and unsecured debt. Then not paying it back. What will be the end result?
- You will be given several opportunities to repay.
- You will be able to renegotiate a settlement of a lower amount.
- Your debt will be reported to the credit rating agencies (who cares).
- After 5 years your credit rating is wiped clean, and you can restart. You simply will have limited access to debt again in the mean time.
- Your debt will, eventually, be passed to a debt collection agency.
- At this point, you can wipe the debt clear because:
- You have no contract with the debt collection agency.
- You never consented to having your details passed on.
- It is an unsecured debt and will never see the inside of a court. Especially if you use conditional acceptance.
- The debt collection agency has paid your debt for you – without your consent. Thank them for their kindness as the debt is no longer is outstanding.
- At this point, you can wipe the debt clear because:
Debt collection agencies purchase bad debts from credit companies and banks at a significantly reduced rate. Usually about 20 to 30 percent of the outstanding amount. So they don’t expect people to pay them. They also have regulations to follow regarding you not being called at work. Or outside certain hours, and not sending people to your home etc. etc. Remember, it is an unsecured debt, so they actually have no right to collect.
There is (yet another) sudo-regulatory body known as the ISI (Insolvency Service of Ireland). There website is backontrack.ie Offering debt solutions ranging from:
- Debt Relief Notice (DRN).
- Debt Settlement Arrangement (DSA).
- Personal Insolvency Arrangement (PIA).
- Advisory services.
I’m not explaining the details, you can visit their website. But suffice to say, I completely disagree with any of these solutions for unsecured debt. Nearly all of their solutions involve turning unsecured debt into secured debt, and making legally binding contracts with debt collectors. Why would you do any of those things? You should be trying the No Contract No Consent and Conditional Acceptance processes first. Maybe do them if these don’t work, but they have always worked for me and the people I helped.
This ends financial brainwave #1. There is of course a better alternative which will give you a proper outline on how to use debt properly. I will do this in a financial management post later. Non payment of debt is a last resort. Especially when it is such an incredibly valuable tool if you learn to use it right.
Mortgages and secured debt:
The point in 4 above about your debts being sold to an debt collection agency. This also happens with your mortgages and other secured debts.
Just don’t stop reading after seeing this paragraph. As always, there is more to it. Once you can prove (very important) your debt has changed hands without your consent or knowledge. Using a GDPR / FOI requests to your financial institution. You MAY be able to remove yourself from your obligation to pay it. Effectively getting your home for whatever the amount you have repaid so far.
However, secured debt is a very specialist matter and each case is different. They need to be handled with great care. The fact is, you could lose your home or whatever your secured debt was secured upon. Generally because it is a common practice for mortgage contracts to be packaged and sold in lots to large investors. There will almost certainty be a clause in your contract specifically allowing this. If not, then your case is strong, but not having this is rare as such contracts are automated and standardised.
This is another reason you don’t trade unsecured debt for secured debt for example, credit cards consolidated into your mortgage. You will lose whatever you are securing it on if you fail to pay. In some cases, you’ll even pay more. I outline a plan that allows you to use unsecured debt to pay off secured debt faster here.
Pensions and Life Insurance:
Unless handled and structured properly, these are a complete scam. Both pensions and life insurance need to be of the right type. They also need to be managed properly and turned into active financial vehicles. This way you can utilise them long before retirement or death.
You need specialist advice on these matters. But you will NOT get it from financial institutions, insurance brokers, or other sales people who are being paid commissions.
If YOU are not the one paying the financial advisor.
They are not working for you, and do not have YOUR interest at heart.
They just want to sell you a product they can collect a commission on. You WILL lose your money. In my now long life experience. I have seen so many people retire, only to be able to barely live off their pension. Indeed, I can safely say many people live better on welfare. Most pensions and life insurance products are a complete scam.
In another article I discuss proper financial planning for yourself.
Stock Market, Currency, and other Trading:
This is not something you should dabble in if you have not got extensive training. You will do better in your bookies betting on the horses. Again, it is part of an overall longer term financial picture. Most brokers are again being paid commissions every time you enter AND leave a trade. Combined with taxes and other fees, you will find it very difficult to make any headway in the markets. People doing so, are doing it as part of an overall financial plan. Not in isolation, with few exceptions – and even these exceptions would do better with a proper financial plan.
I am a professional financial coach. I can teach anyone how to manage their finances, manage debt, and where necessary, how to get out of it. Contact me for consultation. However, the first stages will almost always be those outlined in this article.