Credit Card Debt Part 2

The savings suggestions that I suggested to Maria in the last column must sound like too difficult but she really has to seriously sacrifice until her credit cards are fully paid. She will be in bigger trouble if doesn’t do that very quickly. In fact, she has to prepare a savings plan in writing with specific time deadlines to reduce her credit card debt.

As I said, she should start looking for additional income, whether it is the form of a higher salary or income from a sideline business or both. She must also look around her home and check if she can sell anything to raise money to pay off her bills. She will be surprised that she can do without many items if she really decides to turn her possessions into cash.

Maybe, she should even rethink her feelings about not asking her parents for help if they have the means to help her. But she should do this only if she is really sincere in wanting to change and improve her financial life. Maybe, she can convince her parents to pay for her credit card bill first. In this way, the interest that she pays will not go to the credit card company but to her parents. She can only do this if she has her financial plan in writing and she explains to them exactly how she will cut her expenses drastically and sell whatever she can sell to get out of your credit card debt immediately. All these actions are within her control.

If her parents cannot pay for the bill first, she should negotiate with her credit card company for a lower interest rate. She can do this by surrendering her card and basically telling them that she cannot afford to continue with their high interest rates and that from now on, she will just be paying for the balance and not add any new usage. This way, her monthly payment will be reduced greatly! It is best to always be open and straightforward with creditors.

The highest interest rate charged for loans is the interest on credit cards. When you are not able to pay the complete amount in your statement, the amount due becomes a loan. Unfortunately, interest cannot be suspended and does not end until you pay off your loan completely.

Interest rate of credit card loans is usually 3.5% per month. This is 42% per year when the usual loan interest rates are about 12-17% per year. To make matters worse, the amount you pay each month will be used to pay off the interest due on your outstanding balance first before even reducing the loan amount. This means that it is possible that you are paying mostly interest every month and hardly reducing your loan amount.

Francisco J. Colayco is an entrepreneur, a venture developer and financial advisor. He is the Chairman of the Colayco Foundation for Education and the Author of Four Publications, Three of which are Bestsellers: “Wealth Within Your Reach” (Awarded 2004 National Book of the Year, Business and Economics by The Manila Critics Circle), “Making Your Money Work” (Nominated 2005 National Book of the Year, Business and Economics by The Manila Critics Circle), “Pera Palaguin Workbook? and just off the press, ?Money For Kids.

He is available for talks, seminars, and workshops. Learn more about his advocacy at www.colaycofoundation.com or email info@colaycofoundation.com. The books are available in the Philippines at National Bookstores, PowerBooks, 0917-8537333, 02-6314446 and www.colaycofoundation.com, in Hong Kong at Shop 367 Worldwide Plaza 19, Des Voeux Road, Hong Kong and in Japan at Global Growth Management Inc. (GGM) 9-1, Suite 201, Hirakawa-cho, 1chome, Chiyoda-ku, Tokyo 102-0093, Japan Tel: +81-3-3264-0441 Fax: +81-3-3264-6960 Cell: +81-90-2423-7065 E-mail: ito@ggm.co.jp. In other areas, please contact info@colaycofoundation.com or the publisher of this article.

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