Personal Finance: Understanding reality of debtor liabilities
Personal debt crisis brought to my notice over the past few months has been staggering. There are cases of people on monthly salaries of between Dh20,000 and Dh25,000 with debts of Dh1million that has gone out of control only because of their procrastination.
The flip-side of this situation is that some creditors are not receiving restructure of consolidation requests well. In some instances debtors who have defaulted for four or more months are offered a ‘one-off’ settlement, minimally reduced, to be paid within a few days or face legal action.
How unrealistic is this offer, let us examine the true solution to this problem:
1. Instead of requesting this unreasonable offer, be more realistic to understand the debtor’s history. If the person has defaulted for over four months, then it would be logical to conclude that a settlement is not only unreasonable, but simply not doable. In their mind 80 per cent of debtors wish they had the money to settle their debt, because experience teaches good lessons for most.
2. How about being totally realistic by offering them:
i. A restructure over a longer tenure.
ii. Monthly payments they can afford i.e. calculating their total liabilities not to exceed 40 per cent of their monthly income, maximum 50 per cent because that is the credit regulation for decades in most countries.
iii. Levy a respectable interest, not 29.88 per cent per annum that I was horrified to find with one debtor offer when consolidating a credit card to a loan.
iv. Secure whatever guarantees deemed necessary, even a second guarantee in instances of high liabilities.
Now creditors may question the debtor’s intention to remain and meet the commitment, but the risk and losses go both ways as follows:
i. The creditor could recoup all their funds including interest levied during the new tenure of the restructured facility.
ii. The creditor would then save costs by not outsourcing this debtor’s liability to an external agency where the commission holds a profitable value.
iii. The number of insurance claims by creditors could be drastically reduced.
iv. The debtor would eventually be debt-free, rebuild their lives, remain here, contribute towards the economy and eventually achieve the goals they initially had regardless of who they are, because everyone has dreams.
v. The debtor would have transformed themselves to be more disciplined as it’s a hard lesson to repay debt for a number of years because you learn to make huge sacrifices, not just for yourself, but for your family and those whom you support who depend on you and most of us have those responsibilities.
vi. The creditor would have eliminated the huge negative resistance that culminates within a collection environment as people linked to targets are always creating that form of resistance since their livelihood depends on the success they achieve in any one month.
This means not achieving those targets engulfs them with sheer desperation, and they communicate harshly with debtors, which in turn results in debtors not taking their calls refusing to communicate as continual fear is instilled in them. So the result is targets are just about achieved or not achieved, but the true result could have been over-achieving if the creditor/ agent was not subjected to this pressure and trained how to effectively achieve targets in a harmonious environment.
The example I present is:
a. “You only have today to make this payment, then you will face legal action and our representative will come to meet your employer by 8am!” ; OR
b. “Is it possible you can source this payment amount today, even from someone who will help you, and then I can speak with my manager to consider a restructure and advise you when to meet with us”.
The tones of both approaches are starkly different and no guesses for which one is most effective. So there are more diplomatic or courteous approaches that are received well where debtors will push themselves to take action. In the first instance, the creditor is just piling more fear that is already uncontrollable.
It is a proven fact, that when you push so hard against something, what you are asking, cannot come because there is so much resistance and at the end of each valve, no release valve, except to go and transpose that negativity at home each evening. So relationships and everything else takes a beating.
People need to understand that all of our thoughts, actions and words have power and directly affects the outcome of our lives, whether you are a debtor or creditor.
One very crucial point is that from my personal experience, I know that 90 per cent of debtors do not view their creditors as charity houses where they quite often have to contend with hearing this remark because the representative of a creditor organization is completely out of context to make this remark. Let me assure you that you have no idea of the overwhelming condition of a debtor’s mindset when they approach you for help; normally its sheer desperation and most of the time, willingness.
So the entire world shifted its paradigm since October 2008 where there is loads of empathy, support and consideration to reach or receive to help someone transform their life and situation because there are many good people who make it their business to do this daily as it is life-changing. As the creditor representative, you, I, or anyone else is never immune to facing any form of crisis because when that happens you expect someone to feel sorry for you and help. But the realism is a bad attitude with bad intentions is always remembered so most likely in your time of need, you won’t find anyone who will give you the time of day and I have seen many of this come around.
Debtors don’t have leprosy, nor are they a part of the ‘untouchables’, ‘oh don’t go near them as they have financial problems’ which actually is fuel for your ego most of the time because you are too busy trying to impress multiple people. Wrong strategy because it’s shallow, pretentious where the true you will surface at some point.
We need to learn to be authentic and transparent so when someone is seeking employment and desperately needs it but is in financial problem, don’t ask them to tell you their entire story and once you’ve heard it, you ignore their pleas because you’ve now fulfilled your ego? You don’t know what situation could arise for you tomorrow.
I speak for debtors; I have been in this country for the past five years when I initiated my ‘Embrace Financial’ series of books, articles, workshops and coaching and I am happy I could help many people.
Debtors step out of your engulfed fear zone, creditors I request your full support in presenting the best possible solution for each debtors liability because they deserve a second chance in life, everyone does.
This is not about you but evolution, which means transformation for all of us.
[Note 1: Theda Muller is a UAE-based author of two books: Embrace Financial Freedom Volume One: 10 Proven Ways To Release Debt And Emotional Fears In Today’s Economy, and Volume Two: Releasing Fear And Bouncing Back From A Debt Crisis.
She also conducts webinars and workshops on debt recovery.]
[Note 2: The views expressed are the author’s own and do not reflect in any way, the views of Emirates 24|7. Readers are advised to carry out their own due diligence before taking any decision.]
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