Flooded with Debt: A Case Study

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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