Getting into debt often happens gradually over time, just buying 'ordinary' things. That's the trouble, its easy not to notice until it is becoming a problem.
Sally is 30 years old. She is an office administrator. She is a single Mum with two small children who need childcare whilst Sally is at work. Most of her salary goes on rent, childcare, food and household expenses, and getting to and from work. There is little money left for any extras.
Sally has credit card for convenience, emergencies and to help cash flow. In the first six months, she used it twice and has paid off the balance in full. She knows she can use it responsibly.
Sally works in an office and has to be smart. In September 2009 she needed a new coat for the winter as the one she had is shabby and thin. She saw a coat in the sales, a bargain at 50% off. She is expecting a bonus in her salary at Christmas time. So she puts it on the credit card feeling she can pay it off over a few months.
Image by Idea Go
In October Sally's car failed its MOT and needed £375 spending on it. Most of the car expenses go on the credit card and she pays back the minimum. Thus she starts incurring interest on the card at 16.9%.
Sally decided it would be more economical in the long run to buy a new (second hand) car that will be more reliable to be sure she can get to work, and won't throw up unexpected expenses. They are offering a good deal on loans at the garage and she has a good credit rating. So she traded her car in and took out a 'credit agreement'. This has increased her monthly outgoings by £154.
Photograph by Bill Longshaw
Things were tight the following month her children needed some new clothes. Sally uses her overdraft facility on her bank account. She has stayed slightly later in the office a few times too and incurred a premium on her childcare costs, for picking up the children late. And Christmas is coming...
The cost of food and petrol have been rising and her childcare costs have increased. Sally is in danger of going over the overdraft limit. She is afraid of excessive bank charges so instead so she takes some cash out from her credit card. This helps to pay for toys for the children too, as she wants to make sure they have a good Christmas.
As the New Year begins, Sally is a little concerned at how things are going, but she feels she is in control. She is not doing anything that she does not have permission to do, it is all authorised and the bank and credit card companies are happy.
Then help comes through the post. She gets an offer for a credit card with six months interest free credit on balance transfers. Sally will transfer the balance and pay it off in six months at no interest!
Photograph by Michelle Meiklejohn
Sally's boss has indicated that they are pleased with her and she could be in line for promotion. She needs some new shoes and a suit to look the part to help her in her career. Her first credit card is now empty so it won't hurt to put a couple of hundred on it – after all it will be fine when her promotion comes through with the increase in salary so the debt now will be worth it......
Debt is rarely incurred by buying flash cars, expensive jewellery or similar, but by spending on much more everyday things that you can justify buying.
Please feel free to share your experience in the comments box below.
Photographs from http://www.freedigitalphotos.net
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