Is the Bank Really Trying to Provide You With Debt Help?
Is the bank the best place to go for Debt Help? If you live in North York and you’re struggling with debt should you just hop on down to your local bank and speak with the teller, manager, or any other individual at the bank and ask for their advice?
Let’s play pretend for a moment. I promise, this’ll only take a moment…
Imagine that I owe you $50,000. I can’t recall why I borrowed $50,000 from you – it probably had something to do with me obtaining my doctorate from Clown College, but that’s beside the point. What’s important is I owe you $50,000.
More important – I am currently paying interest only. Fortunately for you, the interest rate is 12%, so that means I’m paying you $500 every single month, without fail. As I’m paying interest only, my balance never changes. Every time I deposit $500 in your bank account I still owe you $50,000.
I’ve been paying you for three years, and there’s no end in sight.
Question…
Do you like me?
My guess is you don’t like me…you LOVE me! You absolutely ADORE me!
Why?
Every month I’m feeding you $500, padding your bank account, and what do I get in return? I get the privilege of paying you another $500 next month, and the month after, and the month after that. Sure, I could pay you more and try to make a dent in the principal amount of $50,000, but the reality is I can barely afford to pay the $500/month.
Congratulations, in me, you have a dedicated debtor who pays his bill! When people ask me how I’m handling my $50,000 debt to you I tell them that I am fine, I am managing.
Let’s fast forward six months…I’ve now been paying you for three and a half years – that’s forty-two months. I’m getting nowhere and making the $500 payment every month is increasingly difficult. In order to keep up with your $500 payments I’ve had to use credit cards to supplement my income. As a result, I’ve accumulated an additional $23,000 in credit card debt. I’m also in overdraft for $2,000. Bottom line is I now owe a grand total of $75,000.
The monthly payments are destroying me. I’m still managing as I always pay my bill on time. However, I’m running out of money fast and I can’t acquire any additional credit. I’m paying interest only to everyone and the balances never change.
One day, I come to your home and I say the following…
Hi. I wanted to tell you in person that I’m having tremendous difficulty coming up with the $500 I owe you monthly. In fact, it’s so difficult that I am afraid I won’t be able to do this much longer and still be able to pay my rent. I have other debts, I can’t get any more credit, and I’m in overdraft. I’ve made some inquiries and I’ve determined that if I file a Consumer Proposal I can reduce my monthly payment drastically and thus save money for the first time in years. Just so you know, if I file a Consumer Proposal it looks like you’ll end up with $10,000 of the $50,000 I owe you.
Do you think I should do this? Well, do you?
How would you answer this question?
Just for review, you stand to not only lose the $500 I’ve faithfully deposited in your account every month for the last three and a half years, but you are about to take a $40,000 haircut on the principal amount I owe you.
So, should I follow through with the proposal? Do you think this is a good idea?
Let’s zoom back to reality now. I don’t owe you a penny thankfully, and the Clown College was a cheap online course in the end. However, I want you to consider that scenario above. How would you have responded to me or anyone else for that matter if that happened to you? Chances are, if you’re like most people, you would discourage me from filing the proposal. You don’t want your monthly cash injection of $500 to disappear and you certainly don’t want to write off $40,000.
If you agree with that last statement let me ask you one more question…why would your bank think any differently?
I am routinely amazed – no, astonished that people ask their bank for advice when they are seeking Debt Help. I guess there’s a natural tendency to assume the bank knows best, and after all there are usually a couple of people at the branch who we kinda sorta know, and we figure they’ll be honest with us. After all, why would a familiar face give you advice that was detrimental to you?
The world runs on self-interest. You may not like that statement, but I urge you to re-read the scenario above. The bank has absolutely no interest in having you file a Consumer Proposal, Go Bankrupt, or do anything else that would result in the bank losing a penny.
Far too often I meet with people who stand to benefit tremendously from my services, but they are dissuaded by their bank to take any action. I show them how a Consumer Proposal will improve their cash position and how I can help them rebuild their credit. They still defer to the bank. While this is frustrating I understand that it’s difficult to resist the bank’s input. What’s actually most frustrating is the fact that the bank never actually provides a solution.
I have no issue with people or institutions protecting their self-interest and/or opposing the advice I provide. What I do have a problem with is someone shooting down a potential solution and then failing to provide an alternative solution.
Yes, banks offer Consolidation Loans, but as I’ve discussed in other posts, more than 70% of applicants will be turned down for unsecured Consolidation Loans. Furthermore, recipients of Consolidation Loans are rarely better off as they still owe the same amount they owed previously. All they have done is changed the interest rate they have to pay. The monthly payments are frequently challenging at best…impossible at worst.
When it comes to debt advice, or any advice for that matter, you want to ensure the person/institution providing the advice is incentivized to act in your best interest. 4 Pillars represents You, and ONLY You. Our job is to find the optimal solution so you can get your financial life back on track and avoid the pitfalls that result from poor advice or advice that conflicts with your needs.
About the Author:
Zach Brull operates the 4 Pillars Markham, On and Scarborough, On Debt Restructuring office. To contact him directly visit his website or call him directly at : 289-466-1029
