The debt trap: Single Mum robs Peter to pay Paul

Case study:

Staying afloat has been one long struggle for Jan* since her marriage ended and she was left with three children to raise.

"We had quite a nice home but I couldn't really manage house payments. I ended up selling the house but I had no idea what [it] was worth and got ripped off."

She bought a smaller property but found the combination of working and raising her children on her own too much. Then her daughter became ill and she had to quit work to look after her.

"Six months later, I was on a benefit. I ended up borrowing money and got into debt.

"I found myself in a cycle of robbing Peter to pay Paul - I had to keep borrowing. I would use the car as collateral to get money from finance companies. They really do rip you off. If you miss a payment you pay extra interest on it. I ended up in a pretty bad situation."

She was forced to sell-up again and moved in with a new partner, but soon regretted it. Desperate to get out and with $20,000 left from her house sale, she was dismayed to find the bank wouldn't give her a mortgage. "Maybe it was because of my history but I had repaid all my debts by then."

She ended up renting - her "worst-case scenario" - and again found herself in debt. She went to a finance company to buy furniture and appliances, including a computer for the children's homework, but couldn't afford the repayments.

"Several times I found I couldn't pay and got penalty interest."

Meanwhile, the power company was threatening to cut her off.

"I ended up sometimes having food parcels and needing emergency money from Winz.

"That was nearly three years ago and I'm still paying them off and have just had to re-finance.

"I almost went back to my partner I felt so desperate, but I finally found help through the budget service."

Now back in the workforce, she obtained a summary instalment order through the High Court as an alternative to declaring bankruptcy. The court order means interest is frozen and she has three years to repay her debts at weekly amounts set by the court. Her repayments now total $90 a week.

She says finance companies have been reasonable with the budget service involved, but she wishes she had sought advice earlier.

"If I'd realised they are there and willing to help before you get into debt then I would have gone to them. Debt is a scary thing but now I know, I just never ever do it."

* Not her real name.