My Debt Relief Plan

Getting Out Of The Credit Card Debt Mess

“Today, there are three kinds of people: the have’s, the have-not’s, and the have-not-paid-for-what-they-have’s. ~Earl Wilson”

Credit cards are truly one of mankind’s greatest inventions. Unfortunately it has also become one of mankind’s greatest curses.

Most credit card companies in the Philippines charge 3.5 % interest rate per month. That is about 42 % per annum. If you do the math, your present outstanding balances will double every 2 years. If you owe your credit card company P 10,000.00, in 2 years time it will become about P 20,000.00.

The best thing that you could do right now is to pay all your credit card debt immediately. That is if you have the money to do so. But what if you owe your credit card company P 100,000.00 or even P 200,000.00 what should you do ? What if you have multiple credit card debts? The following are probably the best steps that you could take in order to rid yourself of this credit card debt mess.

1.) Get a loan with a lower interest rate - Some lending institutions and even banks offer an interest rate of 0.99 to 1.5 % interest per month. This is much lower than what the credit card companies charge. If you can secure a loan with a lower interest rate, especially a diminishing one (Hard to get by these days, by the way if you don’t understand the difference between diminishing rates and straight rates or fixed rates this will be discussed in another post) use the loan to pay off your credit card debt, and resolve to never ever again use your credit card except if you can pay it within 30 days. That way you won’t be charge the monthly interest. By borrowing at a lower interest rate you will minimize your losses due to interest. If you can borrow from somebody at 0 % interest (A rich old uncle perhaps), that would be so much better. If you have several credit card debts, borrow enough to pay all of your credit card debts. This way you can focus on paying only one debt and one interest rate. In financial planning this is better known as “debt consolidation. “

2.) Secure a balance transfer - Most credit card companies have a wonderful feature called “Balance transfer.” When you transfer your balance from other credit cards they will only give you .99 percent interest per month. This is already a steal deal. Balance transfer are payable in certain terms like 12, 24 or 36 months. So let’s say you owe your PS BANK Master Card P 100,000.00. If you have another credit card with let’s say CITIBANK and your credit limit with CITIBANK is also P 100,000.00, you could transfer your balance from PSBANK to CITIBANK. Instead of 3.5 % interest per month, Citibank will only charge you 0.99 % per month (About 12 % per annum). What Citibank will do is that they will add the monthly interest and then divide that with the term that you wish to avail of. For example of you wish to pay off your debt within a year the computation would be: interest times principle + principle divided by 12. So that would be 12 % x P 100,000.00 + 100,000.00 / 12 = 9,333,33. You will only have to pay P 9,333.33 per month. If you say that you will just pay P 9,333.33 per month at 3.5 % per month anyway that is based on “diminishing interest” (This means that your interest goes down if your principal goes down)as opposed to paying a “fixed interest” you will still end up with P 14,822 in debt at the end of the year. If you pay a fixed interest of P 9,333.33 at the end of the year you will end up with zero credit card debt. (I would love to post the table I made, but unfortunately I cannot do it here so just email me if you are interested)

But if you pay only the “minimum” per month, what will happen to your credit card debt ? You will see that at the end of 12 months you still owe your credit card company P 92,585.00. (This will be discussed in a different post) That is why it is not wise to pay only the “minimum.”

There are several things to remember about “balance transfer”:

1.) Balance transfer is subject to approval by your credit card company.

2.) The maximum amount you can avail of for balance transfer is your credit limit. Let’s say you have P 100,000.00 and you used up P 50,000.00 more or less you can balance transfer about P 50,000.00. However take note, this is not guaranteed. This is still subject to approval by your credit card company.

3.) Make sure you pay the fixed monthly installment. In our illustration above, pay the P 9,333.33 religiously, otherwise it will be made subject to the 3.5 % monthly interest. Don’t be tempted to pay only the “minimum” since you will be charged with 3.5 % interest over and above the 0.99 % interest. (This is double jeopardy !)

4.) It is advisable not to use your card when you are using it for balance transfer in order to avoid confusion and to make sure that you can make a priority to pay the installment for balance transfer instead of paying other credit card debts.

5.) Resort to balance transfer only when you cannot avail of the first option. The first option (Get a loan with a lower interest rate) is still the best.

Zigfred Diaz is Vice president for operations for a group of family owned corporations. He is also a Financial & Real estate broker, lawyer, law professor & writer. He regularly blogs about law, leadership, entrepreneurship, management, financial management, investments, technology, internet marketing, blogging, theology, faith, life and living at http://www.zdiaz.com

Add comment December 3rd, 2007

The Cold Hard Debt Settlement Facts

Everyday in this business I face the same questions, speaking from a debt negotiators perspective debt settlement may or may not be the best way out. I will outline some facts that must be kept in mind before deciding to negotiate settlements on unsecured debt. Many debt management programs do not touch on these subjects but I feel they are extremely important to go over before joining a debt settlement program.

Are accounts current or delinquent? In order to negotiate settlements on unsecured debt accounts must be delinquent. Interest rates and finance charges will continue to accumulate on any account that payments are not being made on. Settlements will be based on the balance at time of settlement not when payments where stopped. Do not enter a program that advises to stop making payments to creditors, this will have severe consequences on your credit rating. If accounts are delinquent debt settlement is definitely the program for you because the creditor is looking to save some of the money lent.

Reason or reasons for the amount or amounts owed. Telling a creditor one cannot pay them back on the money used for a wedding is not going to get much sympathy, this was a luxury expense not an emergency situation. The reason for having amassed debt has to be a valid reason and not paying it back has to be a better reason. Such reasons could be situations such as job loss or illness. Not too many other reasons are going to get you great settlements or sympathy.

Are you currently employed? If the creditors find out a person who is delinquent on his/her accounts and is trying to negotiate a settlement is making an amount of money they feel is enough to pay back the debt owed, debt settlement is ruled out. In this case consolidation may be a better option. Be prepared to provide a financial statement if need be. Also, salary may be subject to garnishment if the account is extremely delinquent.

Property or assets. Homes may have liens placed on them, savings or checking accounts may be attached to. If one is planning to negotiate a settlement it is a smart decision to use the equity on the house to generate funds or cash pension plans to help out. Also, friends and family may be a great source for loans.

Spouse. Even if the accounts belong to one spouse the other spouse’s income information will be looked at and definitely taken into consideration. After all it is now a household.

Cash advances. If any have been made in the last year debt settlement is out of the question, again, here consolidation may be the best option.

Prior credit history. If there is a history of bankruptcy or other debt management programs this can affect the outcome of settlement offers either negatively or positive. It depends which credit card company you are dealing with. On all of the above points different companies have different guidelines.

There are many more factors involved in the outcome of wanting to negotiate settlements on unsecured debt, the points above are only but a few of them. Make sure to ask as many questions as possible when seeking debt relief, remember one needs to make the right choice on the option taken.

Dan Delgado is an active unsecured debt negotiator, he has experience negotiating personal as well as business debt. For more information please visit http://www.pemperandgartle.com

Add comment December 3rd, 2007