Last February 15, 2008, a segment researcher of TV5’s Good Morning Club show called me if I am available to guest on their show as a Financial Expert on February 18, 2014. I said yes and told the guy on the phone to send me the details of the show. The topic was about how to get out of debt, a problem that haunts many of our fellow Filipinos today. I was excited to guest on the show and appear on TV LIVE for the first time of my life. To prepare for the show, I did my research, read relevant books and helped in the creation of the script. I know that the segment will only run for few minutes, so the discussion with the host should be quick but with sense and substance. I was quite intimidated to know that the host who will ask me questions would be the veteran broadcaster Twink Macaraig who has more than 2 decades of experience in broadcasting. I learned that she moved to TV5 from ABS-CBN, just like what other celebrities are doing.
I was fetched on my house in Mandaluyong at 5 o’clock in the morning but honestly I am already awake at 3AM to practice and memorize the script. I arrived at TV5’s new media center in Reliance, Mandaluyong City (10 minutes from my house) past 5 o’clock. I learned from the staff that the I will appear in a segment called Good Morning Girls hosted by Grace Lee, Twink Macaraig, TinTin Bersola Babao, Tuesday Vargas and Cheryl Cosim. The show went live at 7AM in the morning. I was very happy that the segment went out well and I was able to deliver the answers to the questions successfully. I thanked Twink for making me feel comfortable during the discussion on how to get out of debt.
Of course, since this is a memorable TV guesting, I never hesitated to get pictures with the hosts:
Can you go to jail if you don’t pay your debt?
This was asked to me in the show. People who always ask this question are credit card holders who are delinquent. No one go to jail because of not being able to pay debt. You will only go to jail when convicted on criminal cases like murder, rape, kidnapping etc. But debt delinquency is not a criminal offense but considered a civil offense. Moreover, the 1987 Constitution states that “No person shall be imprisoned for debt or non-payment of poll tax.” If you are be sued of not paying your debt, the court may order you to pay your debt by liquidating your assets to pay your debts. You must remember that if you issue bouncing checks to pay your credit card debt or any kind of debt, you may be sued for the criminal offense of estafa. The constitution penalizes issuance of bouncing check not because to prevent debt delinquency but to prevent the circulation of bouncing checks to our economy, thus harming public order.
Banks are usually not suing people on credit card delinquency because it is expensive and takes time. To cut their loss, banks sell delinquent accounts to collection agencies which will collect payments to delinquent credit card holders. These collection agents are usually the one who threaten delinquent credit card holders to pay their debt or else they will go to jail. They even threat people that they will be held in immigration if they don’y pay their debt. The worse is some agents spread the debt problem of credit card holders to their immediate family members, neighbors and even office mates with the goal of embarrassing the credit card holder and forced him/her to pay. Although these harassment practices are not justified, these are wake up calls to us that we should not get into serious debt problem.
Spend Below Your Means
I think this is one of the most important tips on how we could avoid and get out of debt. Many of us spend our money like there is no tomorrow. We buy things that we don’t actually need and we don’t actually afford. We don’t stop spending our income until nothing is left to spend. Our usual formula is INCOME – EXPENSES = SAVINGS which is wrong because usually there is nothing left to save. The correct formula is INCOME – SAVINGS = EXPENSES. If our Expenses is higher than our Income, most likely we are in debt. If our expenses keep increasing while our income remains the same, our debt will start piling.
Some of us even consider our credit card as an extension of our income, where in fact it is not. If our regular income is just enough for our daily needs, it would be difficult to pay the things we bought using our credit card. This is the start of getting drown to credit card debt. Even if we pay the minimum amount due for the month, we have to pay the remaining amount next month with the big interest. If you don’t settle the whole amount due every month, the power of compounding interest will not make you happy.
Can we also mention those people who get housing and car loan without carefully prepared plan on how to pay the monthly amortization every month. It is not bad to get loans like these but you should always ask yourself if you could really afford it. Your monthly amortization should not exceed 30% of your monthly income or else there is a danger that it would be very difficult for you to pay the monthly amortization if certain financial emergencies strike you like paying hospital bills.
It is normal for us to borrow from our relatives, friends and office mates. Sometimes, kakasahod pa lang natin ubos na, that is why we are forced to borrow from people we know. We should be thankful if somebody would lend us money but it is very important to pay him/her. Many friendships and relationships have been destroyed because someone is not paying his/her debt. In fact there is a joke, if you want a person to never forget you, borrow money from him/her and never pay it.
If you leave below your means, you do not need to borrow money when you are faced with financial emergency. You should save 10%-20% of your monthly income as your emergency fund. Put in a place that you could easily withdraw like a bank savings account with ATM. The ideal amount for emergency fund is 3-6 months of your monthly income. I understand if you have small income right now, but this should not be the reason not to save a small part of your income to build your emergency fund. Kahit ba 10 pesos a day hindi mo kaya mag-ipon? Gusto mo ba kahit 10 pesos wala ka mailabas kapag may emergency? You don’t need to have a very high income to build an emergency fund. You just need to have the right mindset to save and avoid getting into debt.
Cut Your Credit Cards and Start Paying
If you can’t pay your credit card debts then you don’t deserve to have a credit card at the moment. Believe me, it will only further destroy you as a borrower and as a person if you continue using your credit cards even if you could not pay the monthly dues. Cut your credit cards today and prepare a plan on how you could pay your credit card debt. You should look at your monthly expenses and stop spending on things that you don’t need, prioritize spending on your basic needs. Consider looking for a sideline work or business to earn extra income to pay your debt faster. If you are already a delinquent credit card holder chased by collection agencies, consider negotiating with them with better payment terms so that you could pay. Running away from your creditors is not a solution to your debt problem because it could destroy your credit history making it difficult to borrow from the bank in the future. Banks have shared databases of their delinquent debtors to protect themselves from lending to delinquent debtors.
(article not yet finished, to be continued..)
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