Only if you don't need it

Michael Johansen
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This debtor I know - let's call him Hank. This debtor, Hank, hates being in debt. He's not in as deep as other people he knows, but he still can't dig his way out.

He bought a home, got married, bought another home and then purchased two lemons in a row before discovering that payments on new vehicles are often cheaper than repairs on old ones.

After living debt-free for more than a decade, he found himself owing around $65,000 in various ways to various financial institutions.

Hanks says he's tried to improve his situation by doing what the banks all tell him he should do, which is consolidate his debts, but the banks won't let him.

He says he first tried three or four years ago, but the attempt left him exhausted and little further ahead. At that time, he was paying out around $1,400 a month towards his obligations, with most of the money just paying the interest.

He had two sizable unsecured loans, a maxed-out credit card and the balance of payments on a nearly new vehicle.

He says he approached his bank in an optimistic frame of mind because, to his way of thinking, he had a solution that worked for everybody.

Since he owned a lien-free heritage home on a large beachfront property - one that, if he wished, he could sell for double or more of his total debt - Hank figured he should easily get a mortgage to cover the relatively small amount he owed. He thought he could then reduce his monthly payments by two-thirds and finally be able to start paying down the principal.

Hank's optimism ended when the bank told him his property was only worth a fraction of what he owed.

The bank would only offer him a mortgage to cover a portion of his total debt. Not only that, the bank wanted to increase his payments by $100 or $200 a month.

The bank kept telling Hank what he already knew, that his income could not support his debt, but instead of using that as a reason to help him, the bank used it as an excuse to deny him a deal that would actually improve his finances.

Hank tried going elsewhere to find bankers who would listen to reason, but they all stuck to the opinion that his property was worth less than his debt.

One financial institution even went so far as to offer him a mere $20,000 for his valuable land.

Hank says he was near collapse and, ironically, it was only when he let himself go over the edge that his situation improved.

He was on the telephone with yet another banker who was offering him yet another arrangement that only added to his debt, and he lost his temper, telling the manager to consider all his debts in default from that point on - the bank be damned.

Miraculously, the manager called back within half an hour with a proposal that reduced Hank's monthly payments to under $900. Hank says it certainly wasn't perfect, especially since he had to borrow money off family to make the deal, but at least it promised him a break from the storm.

Now, three years later, the storm is once again brewing.

Hank says he's working as hard as ever, but his income has gone down.

As always, he is meeting his obligations to his institutional debts, but to do so he's had to cut back on all other expenses, including those related to his profession - making him feel like a farmer forced to sell off his seed grain.

However, in three years, property values have steadily increased in Hank's town and no houses are selling for under $250,000. Hank went back to his bank to once again try to consolidate his debt in a small mortgage. The bank was waiting for him.

The bank's response to his request? It raised the bar. Three years ago, Hank only needed an $85,000 valuation to get a $65,000 mortgage. Now it has to be $200,000.

Hank vows he'll be out of debt one day, but he says it won't be with any help from any bank.

Michael Johansen is a writer living in Labrador.

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