There’s this family of four who, despite a decade during which the couple’s salaries rose by around 3% annually, had borrowed an astonishing £80,080 on their credit cards by July. They now spend more on debt interest than on their own children. This year they were both hit by a 4.75% pay cut, and were thus having to borrow another £17,500 during 2009. They spent most of the summer denying they would have to make any cutbacks in household spending in order to repay the debt to the credit companies, but then accepted in September that it would in principle be a good idea. Two days ago they went so far as hinting that they could do without the new operating system for their home PC, although they had yet to indicate how they would actually decrease the amount of borrowing they were doing, far less pay off the debt they owe.
Yesterday they set out plans to sort the problem out in a letter to their credit card company. They outlined that, while the bad news was that they could not repay the debt, the comparatively good news was they would only need to borrow around £9,000 each year by 2014. They noted that they had in fact had to borrow another £17,800 this year, £300 than expected, but would reduce this to £17,500 next year assuming that the couple would both receive a 1.25% pay rise next year and 3.5% in both 2011 and 2012 (despite the fact no such thing has ever been indicated to them, and the financial climate for the company they work for remains uncertain). This would in fact leave them around £150,000 in debt to the credit card company by mid-2013 – more than the total value of their property – but they were sure the credit card company would have no difficulty lending them all this money given the plans they had to spend it more efficiently. That said, they did not outline any plans to spend it more efficiently, and while they managed to put together plans for working overtime which would give them £19,000 more each year, they in fact also managed to refer to new household spending (for things like health insurance and a burglar alarm) of £22,000.
If you were the credit card company, how would you respond to Mr and Mrs Darling?