How I helped my handyman get into debt

The bike we bought H

Since I moved to Guatemala, I have hired a handyman to do work around the house. Let’s call him H. H is 20 years old and lives in the nearby village. He used to work for the previous owner for $65 per month but didn’t do much. When we took him in, we asked him how much he wanted to earn and he said $200. Well, fine, we didn’t bargain, it seemed low and we would need a lot of help to make the house liveable. We were happy with him at the beginning, he looked super motivated and showed initiative, a rare quality at that level of income.

After a week of work, H asked us how long we thought he would work for us, because he wanted to buy a motorcycle, and wanted to borrow $300 from us. I didn’t like that very much, asking for a month and a half payday loan just one week in. And he wanted a brand new agency bike, that cost $1850! OUR $300 would be his down payment, then he would repay $60 to us for 5 months, and $60 to the shop for almost ever. $120 repayments on a $200 salary, highway to financial disaster?

But BF saw things differently. He said we needed a vehicle on top of his fuel inefficient SUV and we could work out a deal with H to use the bike once in a while, until he pays it back in full. BF added that instead of his $200/month salary, while we were building the new room we could hire H as a builder and he would make more money.

We took H to the store to check out bikes. With such a low down payment and monthly repayments, the shop wouldn’t give him the bike. Over 21 months, he would have higher payments and have to repay more than double the value of the bike (about $3500)!! Interest rates are crazy here, if you buy on credit. Our idea was to buy it cash, and then offer H the possibility to repay faster, and at a much lower interest.

At that point, H didn’t give a sh*t about what he would have to repay and his pact with the debt devil. All he saw was a shiny new bike to go play with his friends on Sunday. I told BF that I didn’t think the guy would ever be able to repay so much money out of his salary, but his argument was that we would keep the bike should something happen.

We paid the $1850 in 6 installments at 0% and saw the biggest grin ever on H’s face. Back home, we offered him to take on some of the construction jobs to repay faster. He said he would do the excavation of the hole for the new room and actually earned $375 working hard with his dad and brothers coming to help him. It took them less than two weeks, and it was a way for his family to help him buy the bike they would all use. You would think the guy would be happy and want to take in more jobs to pay his bike off? No.

We offered him another hard but rewarding job to gather 3500 stones to build the new room. The contractor says he pays $.06 per stone and his workers get about 300 stones a day. H would make $18 a day instead of his $7 salary! Probably more since the guys who gather 300 stones work per day and aren’t motivated to earn more by bringing more. Well he said no, thanks. He doesn’t want to work on contract and wants to go back to his monthly salary. BF warned him that he would be worse off. Didn’t care. That we would ask him to do the same kind of physical work and he would get less money. Fine.

Why is that? Because he has his bike and now it hurts to pay for it. And because the two weeks excavation work went FULLY into the bike payment. He didn’t see a dime. It was the deal he agreed to. Except he feels like he worked for nothing. He doubled his salary but had no cash in his pocket, and came to the conclusion he’d rather go back to earning less but have some money left. Of course we wouldn’t have let him go a month without money. During the two weeks he excavated, we hired him by the day and paid his salary cash at the end of the day twice, to help us on the house.

On the next project we would have let him get the $80 per month he said he needed and put all the rest towards the bike. But he probably thought ”I worked two weeks for nothing” instead of ”I paid back nearly 20% of my bike in two weeks”. At the normal rate it would have taken him 3 months to repay us that much.

And maybe one of those days he wrecks it, or it breaks and he doesn’t have money for repairs and it will hurt even more. Is this what buying on credit and accumulating debt is like? When will he realize he needs to pay back whatever happens? I wanted to shake him and put some sense into the boy, but I will wait until he is miserable repaying two thirds of his income into the bike to show him how with hard work he could have paid it in less than 6 months (and $0 interest!) and now it will take over a year as a best case scenario.

I am also thinking about getting in contact with the local teacher and volunteer to teach financial education to villagers. It breaks my heart to see them get into situations like that, paying so much interest they end up paying double on almost everything.

Have you ever felt like this when buying on credit? That it wasn’t fun to repay since you were already enjoying your purchase?

A 30 something French girl embarking on a journey towards Financial Independence. I blog about money, travel, simple and deliberate living, freedom and choices. You can find me on Twitter, Google+, or Reach Financial Independence's Facebook Page

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Comments

  1. Yes, I have definitely felt that way before!!! I used to run up credit card all the time then hate myself for doing it. I’m glad I don’t punish myself that way anymore.
    Holly@ClubThrifty recently posted..Club Thrifty: Turning Our Dreams into RealityMy Profile

    • That’s right, you are not doing yourself a favor by buying things you can’t afford and paying twice their price in interest afterwards. There is nothing to feel bad about but one needs to realize the situation and take action to get out of debt and stay debt-free.

  2. When I had the stuff I bought with credit (a lot of food, actually, and textbooks), I never really thought about the payments. Now I’ve got the debt and none of the stuff and, yeah, it really sucks.
    Edward Antrobus recently posted..3 Frugal Tips for Preparing Your Home for a ShowingMy Profile

  3. Your story about the handyman is a great insight about how we all go into debt. We see that shiny object that we want, and we must have it no matter the consequences.

    I’ll be interested to hear how the motorcycle payoff proceeds. It could be a bumpy road.
    Terry recently posted..10 Most Frequent Problems Found by House InspectorsMy Profile

    • I hope not. He has repaid 20% so far, which would have been his downpayment, so that’s great. I don’t want to overpay for his work because it would be like gifting him the bike but hopefully he will pick up some contract works if we need in the future.

  4. I remember feeling like that all the time when I was in credit card debt. That feeling sucked! It feels so much better know when I swipe my card and know that I have the money to pay for it. I simply use the card to earn the rewards and stretch my budget.
    John S @ Frugal Rules recently posted..10 Ways to Stretch Your Grocery BudgetMy Profile

    • He can’t say he wasn’t warned but it was like talking to a possessed person. Most people here buy things with “24 convenient installments” without realizing they will repay twice the cash price.

  5. Ugh that’s definitely happened to me a few times. Buying the stuff was so fun, but the shock of the credit card bill and the smallness of the payments I made against it sucked all the fun out of it.
    Jordann @ My Alternate Life recently posted..My Debt By NumbersMy Profile

  6. Hi Pauline!

    I absolutely love all of the Guatemala posts! After reading this one I just can’t get over how people can’t see the long-term benefits of keeping the budget tight for a while…. I feel terrible about the people who are constantly getting ripped off by the lenders!

    It happens all over the world, is that the matter of bad financial education?

    Cheers,
    Chris
    chris_moneyandi recently posted..Flight ticket refund and compensation: What’s the difference and when to claim?My Profile

    • Hi Chris! I think it is a thing of our time, we are so spoiled from the start we can’t imagine putting effort into reaching a future goal if we can get something right now. We are threatening him to charge him the same interest the shop would, although I think once we get all the money back we will write the interests off. We bought the bike over 6 months at 0% so at least what he repays in that time is free, I hope he moves his a** and gets it all paid, but it looks more likely that he will take a year to do so.

  7. I loved this story. I think you guys are really helping this guy out! He would have been much worse off without the awesome deal you offered him. And, who knows, you might get through to him eventually! Don’t give up!

    • So far the only thing he learned is that after two weeks of work he can get a brand new bike. Once the emotion wears off, I hope he will realize that credit is never a good thing.

  8. I’ve done that before for sure, but understand how it works and it was my fault. If you don’t have basic financial knowledge, it is very hard to understand interest and total amount owed. All you see is the payment and that you can afford that, not that you will be paying many times what the item is actually worth. If you could teach a class, I think that would be very helpful IF there are people who are willing to listen. That’s a different story.
    Kim@Eyesonthedollar recently posted..How We Paid Off $30,000 in Credit Card DebtMy Profile

    • I was thinking about offering a women’s class, in a macho country men don’t listen much to me. I hope after a year of paying 2/3 of his salary this guy will realize that it is nice to enjoy all your money for a while. Saving is a whole other topic…

  9. Yikes. You should def. try to get some financial education to the local area. I personally think your bf. was wrong and you went a little too far with the whole arrangement, but then again it’s not your fault that someone is willing to not give a crap about the fact that they’ll be paying more – longer than less and faster. Maybe this will teach him a lesson!
    Veronica @ Pelican on Money recently posted..Has Your Boss Been Naughty or Nice?My Profile

    • I hope he reconsiders in a few weeks! He chose the amount he wanted to repay monthly, saying he was fine with 1/3 salary. I think we wouldn’t have taken anything lower since it would take over a year and who knows what could happen..

  10. Great story! I have never felt like that but I really like the motorbike :).
    maria@moneyprinciple recently posted..Four reasons why freelancing leaves me lukewarmMy Profile

    • In Europe we aren’t so much into credit, fortunately. At most we buy a car, but not a blender or a fridge on installments. Here they have a very strong US influence and credit is the norm.

  11. Mrs PoP @ Plantingourpennies says:

    I don’t think I could have fronted someone the money like that believing they didn’t have the ability to pay it back.

    Whose name is on the bike’s title? Does the bike have insurance in case of a wreck?

    If he wrecks it and doesn’t fix it, are you the ones that have the biggest loss?
    Mrs PoP @ Plantingourpennies recently posted..Duplex Valuation – A DCF ExampleMy Profile

    • Ha, insurance! I don’t even think he knows what that is. The title is in his name because our land is under a company’s name and putting the bike under a company is quite complicated. We are betting on his pride because he lives next door and knowing he did us wrong would shame him in the village. If he wrecks it, we talked about taking our loss to get in the village’s good grace. Fortunately he is a careful driver, and our dirt road is not very transited, so I am more worried about repayments than a wreck.

  12. I think it’s a fantastic idea that you try to teach some classes about finance! Especially given that you can probably come up with some very concrete examples, similar to this motorbike fiasco!

    At least you are able to control how much you pay your handyman, so that as long as he continues to work for you, he will be working off his debt. It’s really disappointing to see him make such decisions though, isn’t it? I would attribute a bunch of that to his ripe age of 20. Perhaps if he learns the pain now, he will be wiser in a few years.
    Anne @ Unique Gifter recently posted..The Gift of FoodMy Profile

    • We still have the risk that he asks to keep more of his wage or threatens to stop working for us. We can confiscate the bike and papers that he gives me when I ride it, but that wouldn’t help us with the nearby village, where 50% are his relatives.

  13. Fantastic piece. I love how you’ve walked through the emotion of a typical person. Greed fills their eyes until they can’t think straight. Then once they have the item, they’re not as interested.

    And we wonder why credit card companies have it so good….
    AverageJoe recently posted..The Worst Gifts Ever: Crystal Frogs, Re-gifted Candy and More Bad Holiday “Fun”My Profile

    • Thank you Joe! It’s credit card companies, marketers, publicists… So many people are hard to reject when all they do all day is make us think we can’t live with whatever they sell.

  14. You are much more trusting than I would have been! I don’t think I would have been comfortable working out that deal with someone I didn’t know very well.

    I totally get his point of view though, it’s easy to be motivated when you want something. Its no fun to work hard to pay the bills once you actually have it!
    The First Million is the Hardest recently posted..How To Save $700 By Switching To A Prepaid SmartphoneMy Profile

  15. That is exactly how paying off debt feels. You work and work to pay off the debt but don’t see any tangible rewards for your work. Why? Because you’ve already gotten the reward long ago, in this case the bike. So paying it back isn’t much fun.
    Justin@TheFrugalPath recently posted..Credit Cards: Do You Spend More With Them?My Profile

  16. I think when I was younger I felt that way. I just didn’t think things through at all. Now if I have to put something on credit card it’s usually a last resort. And it still makes me sick.
    Budget & the Beach recently posted..Week in Review 12/11/12My Profile

  17. I’ve felt that way before, but I’ve always had interest, so I’m always a little more motivated to pay back quicker. :p

    I love the idea of starting some type of financial education course in your community!
    femmefrugality recently posted..Seven Free or Inexpensive Activities for Families Visiting Toronto: A Guest PostMy Profile

    • We will start charging interest after our 6 months interest free period. After all we offered him to work hard for a high salary and pay it back in 4-5 months and he refused, his loss.

  18. Luckily I learned this lesson early in life, in high school. I borrowed some money to buy some new gym equipment, which took me a few months to pay back.

    Since I was only making like $100/week, each week my entire paycheck would leave my hands, leaving me with $0 for 16 hours of week. After a few weeks, it really does start to get to you. Even though I knew I had no right to complain, it kind of just tears at you, knowing that you have to work so many more hours to repay someone. After this experience, I basically realized how much of a trap debt can be, and told myself “never again.”
    FI Fighter recently posted..Dividend Growth Investing and the Fiscal CliffMy Profile

  19. That’s really interesting how much value money has in some countries as opposed to others. My jaw hit the floor when you said he made $65 a month. I earn more than that in about 2 hours of work!
    Glen @ Monster Piggy Bank recently posted..Has Christmas Become too Commercial?My Profile

    • Yes salaries are really low here, but people generally build a simple hut to live in themselves, pay $2 per month for water and $10 for electricity and grow most of their food. My handyman lives with his parents and they have 9 kids so the household has a higher income. The problem comes when you bring shiny objects to them and they want to buy them all.

  20. “I am also thinking about getting in contact with the local teacher and volunteer to teach financial education to villagers.”

    Good for you! The funny thing is even in the US and other “developed” countries I think there is a huge need for financial education. I hope that you are able to teach courses and I also look forward to more posts like this.
    DC @ Young Adult Money recently posted..Is Collecting things a Waste of Time and Money?My Profile

    • I hope so. Wouldn’t know where to start from though, so many notions seems obvious to me and with this example I can see that they have no idea about the first thing.

  21. I think this is a HUGE issue in the auto finance industry: consumers get “the fever” for a shiny new car or truck, make whatever pact with “the debt devil” is necessary to get what they want, and after the novelty wears off, they’re stuck with a payment they don’t want to pay. It’s only after they’ve gotten what they want that repayment reality sets in, and they’re no longer committed: the outcome is all too often default, repossession, wrecked credit, etc.
    Taylor @ Repaid.org recently posted..Cutting A Bare Bones BudgetMy Profile

  22. I am enjoying these stories from Guatemala as well. I wonder what would have happened had you and H. ended up with a used bike instead. Curious to know what his reaction would have been and if he had felt differently.
    JT recently posted..Hoping the Rental House Refinancing Works OutMy Profile

  23. Maria Iemma says:

    I always learn something each time I read your posts. Thank you for the insights

  24. Pauline, Reading through your post made me wonder if you were interacting with him as a business or running a charity :). It really lends credence the the old say that if you give someone and inch, they’ll take (or want) a yard.
    Jose recently posted..Confessions of a Tool JunkieMy Profile

    • yep, in French it is ”I lend you a hand you get my arm!”. At the moment he is still paying for his bike, although he seems to be on a zeal strike, he works sooooo slowly BF asked him last time if he was talking to the grass when he was planting it. We have talked about it and decided that if we can’t stand him anymore we would fire him and write off the debt, but so far he is on track with payments and still showing up every morning.

  25. I think buying items like this on credit can take away a lot of the satisfaction of ownership. We don’t experience the purchase as a satisfaction of the pain (the saving). Instead, we get the satisfaction, then have to experience the pain!
    Alex recently posted..Happiness Experiment 39: Eat the Rainbow Day 3My Profile

  26. Nancy Smith says:

    I hope this serves as a valuable resource
    Spend less than you earn.
    When debt is closed out, put 60% in savings and enjoy the remain 40%.
    Use cash for all your purchases and don’t take on any debt except home and auto.
    Have only one credit card with a low limit, and only one loan with monthly payment not exceeding 25% of income.
    Build up an emergency fund first.
    Don’t pay off your credit card balance from the emergency account.

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