Over the coming weeks many consumers will start to come to terms with the fact that they have stretched themselves to financial breaking point over Christmas. January is the month when the Department of Social Welfare's Money Advice and Budgeting Service (MABS) is most in demand, and it is not just welfare recipients who are availing of the service.
"People from all walks of life are running into problems," according to Mr Liam Edwards, the Cork-based national co-ordinator of the MABS scheme. "Not all debt is related to lack of income. People simply overspend. The habit of saving for consumer items is on the decline. Even people on a high income can over-stretch themselves.
"Being in debt is not a problem if your income allows you to service that debt. It might cost you extra on interest and other charges, but that's a free choice. Being over-indebted is the real problem. People find themselves in a situation where servicing their debts means they won't have enough money to pay rent, electricity, gas and maybe even to purchase food."
Many who find themselves in such a situation "panic and ignore the problem".
"Some people don't talk to their creditors at all, while others make unrealistic promises which they can't fulfil. As a result, their relationship with their creditor breaks down. The creditor no longer trusts them and starts pushing harder," says Mr Edwards.
Money advisers working for MABS act as honest brokers between the debtor and the creditor. MABS helps its clients to prepare a family budget plan to ensure that first and foremost they have the money to pay their mortgage or rent, food bills and essential utilities such as electricity. Attempts are then made to renegotiate the repayment schedule on the client's debts with their creditors to a more realistic level which the client can sustain financially.
"The bottom line when a person deals with MABS is that they must have enough to live on, having made arrangements to pay their debts, otherwise there will never be light at the end of the tunnel," says Mr Edwards. A special account is opened for the MABS client in a credit union, into which they pay a weekly amount. Once a month, money leaves the account to pay for essential outlays first, and then to deal with secondary debts.
Money advisers help to explain to creditors "the human side to debt and the problems encountered by people in a desperate situation who cannot pay rather than will not pay". According to Mr Edwards the money adviser can often help "defuse a history of conflict" between the creditor and their client. "The creditor can see that the debtor recognises their problem. The fact that they've come to use our service means they want to do something about their debt. That's reassuring for the creditor, and in the majority of cases they welcome the involvement of MABS. Of course some lenders are more understanding than others but resorting to the courts can be a very expensive way of recovering money.
The "accounting function" for MABS is performed by credit unions around the State. The scheme originated in the Lough Credit Union in Cork, as a means of assisting a small number of customers who were in dire financial straits, according to the branch manager, Mr Pat Coughlan.
"We had customers who were going to moneylenders to repay their credit union debts rather than talking to us about it. We sat down with them and said `Look, we're not here to screw you into the ground, we're here to help you'. The scheme allowed us to go about restructuring their finances, and enabled the client to distribute their surplus income between the credit union and other creditors."
The Department of Social Welfare liked the credit union's scheme so much that it set it up on a pilot basis in five centres around the State in 1992, and seconded the Lough Credit Union's assistant manager, Mr Brendan Roche, to help run the scheme in Cork. The scheme is now in operation in 50 centres and has a budget of £4.2 million. The Lough Credit Union alone deals with 400 MABS clients.
"The scheme is running a dream," says Mr Coughlan. "However, there are more people out there with difficulties than ever. People are running into problems because access to credit has become easier and mobile phones are creating difficulties as well. However, once people agree to stay with the MABS scheme for a few months, they find their spending patterns change and that they can cope with the debt after all."
According to Mr Edwards, the effect on the well being of some clients is dramatic. "The impact of over-indebtedness on a person and their family is horrendous. They lose dignity and self-esteem and experience despair, guilt, anxiety and in some cases an increased tendency towards suicide," he says.
"It takes a lot of courage to look for help, but having done so, there is immediate relief. Money advisers have told me that when the debt burden begins to lift some of our clients' whole bearing is so changed they even walk taller!"
