How to manage your debt problems?

Last Thursday, April 24, 2008 I received a text message from “an avid reader” of my column asking me one of the most commonly asked questions. His question reads: “is there any possibility that a person maybe imprisoned for not paying his debts?” Well, I realized that if I will dwell much on his question it might give a wrong signal and besides, I am not a lawyer so I thought of focusing more on the positive side of his problem. So instead of trying to go nuts about the problem, lets discuss more on how to manage the said problem.

I know that there are times, or maybe more often than not, we overspend or availed of too much credit that we can no longer pay them on time.  So today, I would like to share some valuable tips on how to stay “out-of debt” or just simply “manage your debt problems.”

The following are “Tips in Maintaining Good Credit Risk Score/ Credit Discipline from Iris Taylor and Shana Moore, Certified Credit Counselors which I know could be very much applicable to all of us:

First, Understand why your credit risk score is important.
Aim for “maintaining good credit rating”. (In the Philippines, just like in other countries, a consumer can be reported to a credit bureau for delinquent account).

Second,  everything begins from small things. Start with paying bills on time. If possible, get into the habit of making payments as soon as the bill comes in. Don't wait for the due date.

Third, sit down with the family and write financial goals together. That way, everybody, including the kids/ siblings, gets on board. It's discouraging if one person is resolved to pay down debt while everybody else constantly clamors to dine out, watch movies or buy toys.

Fourth, focus on paying high interest accounts. Your high-interest accounts go down slower.

Fifth, stop using the cash-advance feature of your credit card. The interest rate is always higher, and you wind up paying a lot more interest and taking longer to repay your debt.

Sixth,  stop thinking of your credit card as a cash cow. It's not. It's a loan; you're borrowing money.

Seventh, always remember that, if you mess up with one creditor, you mess up with all.

Eight, call your creditor if you're in over your head. "If there is no way to make even the minimum payments to your creditors after reducing expenses, call your creditors and work out long-term repayment plans with them.

Ninth, get a reputable debt-management firm to plan your repayment/ payment of your bills for you. "For many consumers, that's the only alternative, because they don't have the personal financial discipline or savvy or knowledge to do it on their own.

Tenth, and most importantly, stop giving away your money. Pay cash whenever possible so you don't waste money paying interest. If you can't pay cash, shop with your lowest interest-rate card. Pay off outstanding balances to avoid finance charges, penalty and interests.

Remember, it pays to pay your self first. The key is to stay out of debt and maintain a debt-free living.

(Mr. Ed F. Limtingco can be reached at 0917-7220521 or at [email protected])