Tuesday, 17 November 2009

The first nation-wide day without debts

As an unwavering opponent of living in the red I can only acclaim the initiative of Polish financial firms and associations, taken in partnership with the biggest debt collection company, aimed at highlighting the problem which affects more and more Poles.

According to the estimations, about fifty per cent of Poles run up debts. They do it for different reasons – to improve their standard of living, to fulfil their dreams, to give their children a better future, to make ends meet or to pay off the earlier outstanding debts (which is a vicious circle in a way).

The scale of problem seems to be increasing – around 1,5 million of Poles default on debts or do not pay them in time. The bad debts hit bank’s portfolios and consequently balance sheets. Bank provisions and write-offs for bad debts are forecast to soar in 2010.

The mail goal of the action is to educate, along with the old principle “prevention is better than cure”. The organisers rightly put the insufficient financial knowledge down to the troubles indebted Poles get into. The biggest mistake of an average distressed debtor is trying to avoid contact with the creditor at all costs. It is not the point, from what I have learnt when I worked in a bank, the creditor will always be ready to negotiate – they want to recover their debts and avoid costs and formalities, which involves taking the collection into the court. So contact them, arrange the schedule of repayments, negotiate the terms of contract.

Having talked to some experts in the issue I came to two conclusions. First one is quite simple – in order not to fall in the trap of indebtedness we should change our consumer habits and not yield to the illusion of having something, despite not affording to buy it. A new TV, refrigerator or laptop bought on instalments is not yours until you pay it off. My second thought concerns education. I was not taken aback by the fact people cannot calculate the actual interest rate of a loan. The regulators, mindful of this obliged banks to include it (in Polish it is known as Rzeczywista Roczna Stopa Oprocentowania – RRSO, EN: annual percentage rate) in the prospectuses and contracts. The lack of strong mathematical skills may also explain unawareness of costs of credit. The borrowers sometimes do not realise they will have to give back much more than they had taken out. Still, it is not the most alarming fact yet. Much more shocking is what has been declared by many people who defaulted on their debts and their property has been foreclosed – those debtors had not realised they would have to pay it back. Mind-boggling dear reader? Yes, they thought it was a gift and they didn’t plan to return the money, not to mention paying the interest on it. Those are the poor, who fall into the trap and end up turned out of their flats. Not creditworthy, with bad credit history are rebuffed by the banks and become clients of loan sharks…

So once again education to move us forward!

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