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Credit's Like Crack, Highly Addictive and Very Dangerous

Should borrowers be held responsible for their own decisions? If I'm unable to afford the repayments on a loan or spend it all on high living, is the bank at fault for being an irresponsible lender or is it my fault for asking for the loan in the first place?
Who will ever forget the man who sued McDonald's successfully because he wasn't warned that hot coffee could burn him? This is an extreme example of how companies are being held responsible for their actions (or in this case inaction) rather than their customers.

The McDonalds case is absurd, but it serves to underline the principle, that if companies want to sell a product they must treat their consumers fairly. This ethos becomes even more important when financial products are being sold. If customers don't understand what a product offers through the lender being economical with the truth, then they could lose thousands and even have their lives ruined.

Therefore the Office of Fair Trading's investigation into reckless lending is very welcome. It intends to look into the procedures and sales tactics which banks employ when offering a personal loan or mortgage. Before the recession became reality, banks were offering customers credit cards and loans which they could ill afford. Even mortgages were on offer, which were over six times the customer's income. Chickens are now coming home to roost, as the cost of mortgages rise and the price of houses fall, there are an ever increasing number of people having their houses repossessed or even becoming bankrupt.

You may think that credit is a bit like crack, extremely addictive and very dangerous. For far too long banks have been handing it out (I don't mean crack but credit) to all and sundry, so it is hardly surprising that we have become a nation of addicts. Once this horrible recession is over, you will find that credit is much harder to find and very much more expensive, but banks should have learnt their lesson and know that if they hand out loans to high risk customers they will be held responsible and the world will be better for it.

So what should you do if you have become a victim of irresponsible lending and have fallen deeply into debt?

These are the steps you need to take.

1. Don't bury your head in the sand and ignore the bills. Contact each of your creditors and discuss whether you can make reduced payments over a given period.

2. If you fail to reach agreement, contact a debt management company who will make a 'voluntary arrangement'. You will have to pay an agreed sum each month to your creditors, which will be much lower than your original payments unless the creditor has issued a Court Order, when they will be in line with the Court's judgement. The debt management company will charge you a set up fee and a monthly handling fee. A voluntary arrangement has no standing in law, so your creditors can demand repayment in full at any time.

3. An 'Individual Voluntary Arrangement' (IVA) is similar to a voluntary arrangement except that it is binding in law and has a set period to run. At the end of that period your debts have to be paid off in full.

4. Bankruptcy is a last resort. You have minimal assets and cannot see how you will ever pay off your debts.

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