Where we are heading: Credit mania is not an accident waiting to happen, it is already happening, pundits say.
RIGA - Gints, a project manager for a small company, and his girlfriend Guna, employed at a leading Latvian company, are both in their mid 20s. Last year they bought an apartment together in Riga. Now they are struggling to meet their payments.
"At the moment my expenses are higher than my salary and if it would not be for my boyfriend I would not have money for food," Guna said.
The couple used to have separate accounts because Guna didn't want to feel dependent, but now she needs her man to help her with even basic needs.
The couple claims it's not carelessness on their part that has put them in this situation. As Girts explains, they calculated for a long time before deciding to buy their apartment and in the end figured that taking a loan was doable.
"Everybody here was talking about a crash in the real-estate market because it is overvalued, but nothing was happening so we felt this might be the last train and in worst case scenario we can always sell the apartment," Girts said.
"We have managed to fix our interest rate at 4.8 percent but this agreement will expire after five years and then we'll just have to see what will happen," he said adding that if the interest rate on their loan will pass 5 percent he and Guna could be in deep trouble.
It's a situation that more and more Balts are finding themselves in. Much of the economic growth in Latvia, Estonia and Lithuania was based on domestic consumer spending, but a huge chunk of that money was borrowed from the banks. Now the banks have been burnt in the credit crunch and are squeezing borrowers.
It seems the gravy train is well and truly over.And some experts predict the situation could turn into a nightmare.
"The government is trying to slow down the economy in a general and well managed way, but if the economy does not continue to grow at 11 percent a year people will start to have problems with their personal finances," Financial and Capital Markets Commission Chairman Uldis Cerps said.
In its spring outlook, the International Monetary Fund (IMF) said Latvia's gross domestic product (GDP) growth is likely to fall to 3.6 percent this year and that next year GDP growth may drop to 0.5 percent, which is close to stagnation.
Real-estate meanwhile is plummeting, down 20 percent since last summer and mortgage lending has practically come to a standstill. The national economy, which analysts have been saying for years is overheated, is in need of cooling down, but there are fears and warnings that the government's plan to cool down the economy and fight with the inflation could lead to difficulties.
Over issued loans
A lot of the problems people are having now are because of the way they borrowed money in the past. It was not uncommon for borrowers to take loans beyond what was necessary to buy a home. They then spent the surplus money on consumer good and flashy cars.
"It is true that many loans in the past have been over issued because borrowers wanted more money to spend on consumer goods, but there are new rules now in place to diminish this practice," Unibanka Chief Economist Andris Vilks said.
But while people are suffering debt collection companies are making a killing. One of these companies is Pauls Konsults. They say around 70 percent of debtors don't even try to repay what they owe. So far the company has taken over some 200,000 debt cases from banks and leasing companies. Some people are not able or prepared to pay back debts as small as 100 lats.
Agnese Priedite, managing director of international debt collector Intrum Justitia's Latvia branch, thinks despite lack of data there is a noticeable amount of unpaid bills. She said too many people spend 50 to 70 percent of their incomes paying off debts.
"There are plenty of people who don't calculate carefully enough, not only for their loans but also for living costs, which are going up and up all the time," she said.
A case is point is a young executive who we met are the start of this piece, Guna. As she rolls down the window of her new silver Volkswagen she reflects on the fact that it has a lease of 175 lats per month. She knows she is spending above her means but she can't resist having luxury items.
"You can't really feel the amount of money you spend every month when you pay it in smaller portions all the time," she says, as she throws back her hair and drives away.