Opinion: Debt management

POSTED: 12/22/11 3:43 PM

A service to help people manage their debts. That is one of the initiatives the department of social affairs is working on. In the first quarter of next year a team will visit a debt management service in the city of Amsterdam to gather information about the best way to set up such a bureau in St. Maarten.

We don’t know at this moment how many citizens are indebted and for how much. Mortgages are not the type of debts that cause the most reason for concern. After all, consumers have equity against such a debt in the form of a home, and as long as they are able to service this debt there is no problem. This is not to say that mortgages will never become a problem: a look at the meltdown of the housing market in the United States quickly reveals everything we do not want to happen here.

The real problem are consumptive debts like car loans and loans to finance vacations, flat screen TVs and all the other stuff people like to have. Short term loans like salary-advances also create more problems than they solve. Again, these debts are not a problem as long as people are able to pay the installments comfortably.

But when there is no money to pay these installments, trouble is unavoidable. Cars don’t have the eternal life; they are also vulnerable – just think about traffic accidents. And if we look at all the big cars that are driving around on the island, we truly wonder where all that money is coming from. With a large majority of the population working for minimum wages it certainly does not come from savings accounts, so it must come from a bank, or another lender.

We know from data released in Aruba that quite some people with lower incomes borrow money in what is euphemistically called the informal circuit. As long as these informal lenders are family-members, this is more or less okay – though it could obviously lead to disrupted family-relationships if the borrower defaults.

The main concern here is about people who seek a solution by going to a loan shark. Nobody advertises himself as a loan shark, of course, but borrowers are bound to find out whom they are doing business with the moment they are unable to repay their loans. Beatings and broken bones are not uncommon in this environment.

To prevent people from ending up in such situations, a government-led debt management service is an excellent idea. Many people have no idea how to deal with their debts. They panic, sometimes they simply disappear, or they go to a lender of last resort – a loan shark.

There are much more practical solutions to settle personal debts. The most important one is to bring all debts under one umbrella and then to agree to pay off on it every month. This is easier than dealing with several creditors.

And what to do when there is no perspective at all for repayment? In that case, the best way to deal with the situation is to make all creditors an offer for pennies on the dollar. A $15,000 debt is a huge amount of money for somebody who has only $1,000 in his pocket and no job and no income to look forward to.

Explaining this situation to creditors accompanied by an offer might bring a solution. List all debts in a letter to all creditors and offer them a part of your $1,000 proportionate to each debt.

This is a simplified example of how to deal with debts, and we’re sure that the social affairs department, once it has set up the service in the course of next year, will be able to offer its clients more detailed assistance.

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