Helping consumers manage
their financial challenges

Flooded with Debt: A Case Study

26/07/2020

Source: ican.org.au

Image from Shutterstock

Life was good for Jacob and Ivy*.  Like most young couples starting out, they moved into a rental property in Townsville which they proudly called home, and were excited to be living independently from their families for the first time.  It didn’t matter that they were just beginning their careers; they had enough money to be comfortable and were excited to build a future together.

Then the wet season hit.

Townsville’s “once in a century”
floods completely devastated the city in 2019. 
Jacob and Ivy were forced to evacuate their much-loved home during the
floods, only taking what they could carry to an emergency shelter. 

On returning to their flood-ravaged home,
they discovered most of their precious belongings destroyed and their home
unlivable.  Shattered at having lost
everything and being displaced, Jacob and Ivy moved into share accommodation to
try and start rebuilding their young lives.

The
Debt Trap

Knowing they needed to replace most of
their household items before they could live independently again, Jacob applied
for a credit card with an interest-free period, thinking this would allow them only
to pay back what they spent.  To Jacob’s surprise,
he was approved for a credit card with an $8000 limit, when he had only applied
for $2000.

Traumatised by the flood and
displacement, Jacob became overwhelmed by what they had purchased, what they still
needed to buy, and how much of the credit to spend.  To cope with his mounting feelings of anxiety
and isolation, he started using the additional funds on his credit card for online
gambling.  Within a matter of months,
Jacob lost over $4000 and was in serious debt.

Hitting rock bottom, Jacob realised not only was gambling not helping his situation, but he also now had a massive debt from the additional funds available on his credit card that would incur interest.  To make matters even worse, now he had to tell Ivy.

The
Road to Recovery

Coming clean with Ivy about their real
financial situation was painful, but the first courageous step towards their economic
and emotional recovery.  Contacting ICAN’s
free Financial Counselling service was the next major step in breaking free of
the debt trap.

After meeting with Jacob and Ivy, ICAN
lodged a complaint with the loan provider on Jacob’s behalf.  After several months of negotiation, a settlement
offer was recently received, allowing Jacob to affordably pay his way out of
debt and gain control over his finances.

With the support of his Financial
Counsellor, both Jacob and Ivy learnt about the free tools and resources
available to them when making future financial decisions, as well as the
importance of a transparent budget.  Using
ASIC’s Moneysmart loan calculator and learning how to read a loan application
also empowered Jacob and Ivy by allowing them to work out for themselves
whether they can afford a credit contract in future, rather than relying on a
credit provider to do it for them.

Jacob and Ivy recently moved back into a
unit of their own, and with their newfound financial confidence and some life
goals in place, the future is once again looking bright.

Check out ASIC’s Moneysmart Calculator here: https://moneysmart.gov.au/loans/personal-loan-calculator

*Names
and details have been changed to protect privacy