Cliff Mearns Shows Us How To Escape Our Debts:

Cliff Mearns is CEO of a company called Credit Counsellors Australasia . It works with people on the verge of bankruptcy to try and avoid them falling over the cliff. He has some interesting things to say about home budgeting and the best way to plan your money.

To learn more about Credit Counsellors, go to Click Here

So Cliff, maybe you can talk us through what you and your company do?
Well personally, I have been in and around financial services for around 50 years. Twelve years ago I became aware of insolvency difficulties in households and new programs the government had introduced to try and steer consumers away from the bankruptcy area. It appealed to me very much. In a way, it was a reverse flip because I was a senior credit manager chasing consumers to pay their debts. But now, I’m in a position where I can help people pay their debts and avoid a lot of the problems arising from debt collection harassment.

The people who come to our company are people who simply cannot pay their debts in the manner creditors require, when those accounts become due. So the purpose of our assistance is to help consumers reorganise their indebtedness in a legal way by proposing an offer of settlement to creditors by making a regular payment from their income to satisfy a compromised settlement. The proposed settlement would be calculated based on household income and expenses and subject to a budget. Secured loans such as mortgage, car, boat or other items are allowed for in the budget so the asset isn’t repossessed.  

To apply for this type of compromise though, they must be on the borderline of bankruptcy. In fact, they must be insolvent. It’s not a program which entertains a reorganisation of debt because it is convenient. The client really has to be in a spot where they are saying, “I cannot pay my debts; I need some help.” If creditors accept the proposed compromise it really does stop forced bankruptcy. Our confidential indepth financial assessment will ensure the program is suitable for them.

Think of our company like a tax agent. People can make these arrangements themselves with the businesses they owe money to. However, the documents are very, very complicated. The whole issue is complicated because the law is changing all the time and it is under review at the moment. Like going to a tax agent, you might be quite capable of doing your own tax, but most people need professional help to make sure they do it correctly. This is why organisations such as ours are registered to do this sort of work.

If you could give us three main reasons why people get into so much debt, what would they be?
First of all, most people don’t set out to become insolvent. But if I had to narrow it down to just three things:

1.The most common cause is that they have had a serious event in their life which has affected their ability to meet their commitments. This could be redundancy, a serious illness, a split between partners who are in a defacto relationship, a death in the family or a divorce. Generally, it’s a major event.

2.Many lack financial skills sufficient to set and live within a family budget.

3.People just don’t budget because they see it as a grind; a lot of Australians just ride the wave and hope for things to change.

4.There are some people in our community who simply don’t care although it is fair to state that they are fortunately few and far between..

Could you tell us about a case of someone who has stuck out in your mind? A special case where you have helped someone?
The most prominent one in my mind came to us around five years ago and they got out of debt around a year and a half ago. They had never had credit cards in their life.

The couple were in their mid-fifties and their son married a young lady. She was an orphan so she didn’t have any parents. The son’s parents had to pay for the wedding, so they went out and got a credit card to pay for it.

The couple get married and the daughter-in-law has a baby. Being typical grand parents they went out and purchased the cot, blankets, clothes and all the items which go along with having a baby. The son was unemployed, so not only were they supporting the son, daughter-in-law, and the baby, but they had to get a second credit card to help pick up the costs. So now they are maxing out two credit cards.

A couple of months after the child was born, it died of cot death. Funerary costs added to the issues. The son, believing he had caused the baby’s death, committed suicide. So then they had their son’s funeral to pay for.

This couple had never owed anybody a penny in their lives but through some terrible circumstances their situation had changed dramatically. This is why it sticks in my head; they struggled and struggled and finally paid off their debts. I was so pleased for them; I actually sent them a bottle of champagne.

So you mentioned credit cards there; what is your opinion on using credit cards in everyday life?
I think people need them. We are a plastic society. The reality is there are a percentage of people who can’t manage their credit cards. But I think credit cards are a necessity because it’s not safe to carry a lot of cash around.

But when the debt is not paid back in full, it’s constantly accruing interest. We are talking anything from 17 and 20 percent these days. A lot of people pay the minimum payment, but the minimum payment is generally not touching the principle. It’s simply paying the interest, so they keep using it but only pay the minimum payment back. Then the debt just keeps increasing and increasing and all of a sudden they are over the limit and they have no way of paying it. If someone is unemployed and needs food, of course they are going to use a credit card.

Also, I think children place parents in a demanding situation. In this day and age, children need or want the things their peers have.

Credit cards are a lifestyle. But it is a lifestyle you have to manage the best way you possibly can.

The Global Financial Crisis hit in 2008, have you noticed a change in people’s behaviour? Or a spike in your business?
There has been an extreme change in people’s behaviour and even though I’m an insolvency practitioner, from a community point of view, I would say very much for the better. People have certainly slowed down on their spending. They appear to have put their credit cards away and they seem to be, across the board, very responsible about how they spend their money, at the moment.

When you went from providing credit, to helping people out of debt 12 years ago. Did it change your view on the marketing of credit?
I think it did. I was only having a discussion on this issue the other day. I always believe and I think rightly, if someone borrows money they have an obligation to pay it back. That is why we live in a capitalist society. Every bankruptcy in Australia causes difficulties in the community; at the end of the day the community pays for it.

Nevertheless, there are creditors who did , and I say did because they have certainly tightened up; where they used to throw money at people without doing proper financial assessments and checks to see if the borrower could afford it. It’s very much a rolling stone. If you are going to throw money at people, then people are human and they will accept the money you give them. If they are not well educated in finances, it is clear they will get themselves into difficulty, and this is the situation a lot of lenders find themselves in at the moment. They have bad debt levels which are quite substantial.

You have been in the financial area for over 50 years. Were you always good with your home budget or was it something you had to learn?
It was something I had to learn. It’s something most people have to learn. In my younger days, I struggled quite a bit. However, in my younger days there was no such thing as a credit card. But I think everybody has to go through the learning process. It’s a matter of learning to live within one’s limits.

If you could go back to your 21^st birthday and give yourself advice about money. What would you tell yourself?
Budget, I think has got to be the capital thing. Live within your means and work hard. I tell all young people to work hard. When you are young, you have the energy and you can apply the energy to working which should reward you in life. You can get the things you want. You can’t have the things you want if you can’t pay for them.

Let’s say you had a magic wand and you could wave it over the world and teach everybody one fact about money; one budgeting idea that everybody would believe. What would that fact be?
Avoid falling for consumer traps such as feeling compelled to own gadgets that you don’t need. Educate yourself to understand the difference between what you need and what you want.

Make your money work for you rather than being too easily manipulated to part with it.
We all need credit and want to own a house. But at the end of the day you are not going to get a house in the medium term if your credit is messed up.
 

There are a lot of baby boomers in Australia who have saved nothing for retirement. They believe the government pension will look after them. What is your view on this?
Well, my understanding is that the pension is basically finished, that’s why superannuation was introduced. If we aren’t able to obtain the pension, I guess we keep working.

In Europe for example, where they are increasing the retirement age from 50 to 55 in some countries; 55 to 60 in other countries. Greece was talking about from 65 to 70. It was mentioned not that long ago but I don’t know by whom, the retirement age should be lifted to 70 in Australia. We are all living a lot longer these days and we all have the capacity to work for a longer period of time. I think that people, who lack savings, at the end of the day, might have to work, even part time, but they might have to work.

It depends on what their expectations are for the rest of their lives. A lot of people might own their own homes so there are a lot of things available to them like reverse mortgages. I personally am not a huge lover of them. However, they do allow the property owner to take a percentage of their equity back and they are relying on that.

What is your outlook for the world economy?
Well, I’m not an economist but I believe the world just goes around. There are countries on the verge of bankruptcy and we are very lucky to live in the country we live in. Unfortunately, I think that Australians are taxed to the floorboards. I think it is very sad that we are considering the money the government earns. Sometimes I wonder what on earth they do with it. It just amazes me sometimes. The world will sort itself out as it always has.

Do you ever come across rogues in your industry? People who promise the world to people in debt, yet do little?
Yes I do. It annoys me, and many of my colleagues, that there are operators on the periphery of our industry offering financial advice to consumers who in fact have no insolvency training and are neither registered nor licensed with the proper regulatory authorities. They have no qualifications, no history and little or no experience of value. Yet they put themselves out there for reward.

 Thanks for your time.