Home' Trinidad and Tobago Guardian : May 11th 2014 Contents SBG4 | COVER STORY
www.guardian.co.tt SUNDAY BUSINESS GUARDIAN MAY 11 • 2014
THE DEBT TRAP
Central Bank: Value of credit card transactions at more than $7b
have been at some point or are in a situation
similar to Jane s or Steve s.
Do Jane and Steve represent a new T&T
Are people living beyond their means in
order to acquire the things they want now?
Are we putting ourselves in an ever increas-
ing debt hole in order to keep up with the
A new financial reality?
Shane Marhue, the managing director of
Credit Chex, a debt collection company,
thinks so. Based on his observation, he told
the Sunday BG that over the past three years,
he has seen an upsurge in credit card debt
and repossessions of hire purchase items.
"From where I sit, I would say definitely
that people are swiping their cards and taking
a lot of things on hire purchase and maybe
not thinking it through to see if they can
afford the items."
The Central Bank s Summary Economic
Indicators for December 2013, puts the value
of credit card transactions for the year at
more than $7 billion ($7,823.4 million). Even
though there was a slight decline in credit
card transactions in 2012 ($7,532.2 million),
overall, there has been a sharp increase since
Joel Quamina---a certified financial advisor,
former senior banker and a regional unit head
at the Guardian Group, which offers financial
services and products, such as life, general
insurance and pension planning---said that
people find themselves in situations like Jane s
and Steve s largely through a lack of financial
knowledge. He said this is compounded by
a lack of patience, fuelled by consumerism
and a lack of financial planning.
In his opinion, most people with debt
issues acquired them through what he termed
as short-term retail lending. These included
credit cards, car loans and personal loans
such as those for Carnival costumes, appli-
ances and furniture.
A look at the Central Bank s January Eco-
nomic Bulletin for 2014 showed that loans
by commercial banks increased by 63 per
cent between the end of 2006 and the third
quarter of 2013.(see chart). In 2006, the total
amount of consumer loans outstanding was
$13.73 billion, in the third quarter of 2013,
this went up $22.46 billion.
Real estate mortgage loans represented 43
per cent of the total number of loans in the
third quarter of 2013, contributing $9.66 bil-
lion. This, compared to 11.6 per cent for vehi-
cle loans, 0.5 per cent for domestic appliances,
16 per cent for other purposes, 6.8 per cent
for the consolidation of debt and 6.7 per cent
Jane* is smart, confident, moti-
vated, all the qualities she
needs to succeed in the com-
petitive world of advertising.
But she also has an image to
maintain. In an industry where
shadow is often worth more
than substance, she has to look
the part. The look includes a new car.
"When I drive into the parking lot at work,
I hide my car in the back where no one will
see it," she said. Jane drives a Ford Focus that s
five years old, but said in her work environment,
many of the top employees drive more expensive
cars, such as Audis and SUVs in the latest series.
She wants to fit in and get a car more in
keeping with her colleagues standards, but
cannot. Jane is in the last stages of paying off
debts of $80,000, comprising student loans,
payments on her current car, vacation loans,
Carnival loans and an overdue phone bill.
*Steve got married 11 years ago and took out
a $20,000 loan to renovate his small home to
accommodate his new wife and baby daughter.
However, the home repairs cost much more
than he had anticipated, absorbing all of his
savings as well. The marriage did not work out
and the divorce, plus the maintenance that his
wife insisted on, forced him to take out even
more loans. It took him a period of almost eight
years to clear this first amount of debt, which
came up to $250,000.
Two years ago, a friend convinced him to
join a "sure fire" business venture. He borrowed
$40,000 to invest. His plan was to give the
friend $20,000 and add $20,000 to his own
personal savings. He would have owed the bank
over $50,000, when the interest on the loan
was added, but said the return on his investment
in the business was supposed to be $60,000.
The business venture failed and, even though
the friend returned his initial investment, Steve
still has to find the money to pay the remaining
principal and interest on the loan. He also bor-
rowed money to buy a car, another debt he has
The question in many readers minds: how
were they able to get themselves into such debt
in the first place. But the truth is, many people
Continued on Page 5
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