HERE'S a quick quiz for the financially enlightened Filipino:

What's easier: Earning P20,000 additional income in a year or paying off your debt from the paluwagan, the friendly five-six guy or credit cards in full and saving that amount in interest payments?

As more Filipinos entered middle-class status in the last few years (thanks to sister or cousin or aunt living and working overseas), credit cards and other forms of consumer loans have not only become a preferred way of juggling cash flow but also a matter of status.

But whispers of a global recession and creeping fears of a crisis are allowing both the nouveau middle class, and to some extent others in different strata, to re-embrace an austerity they thought they had been freed from. To many, that means finding holes in the budget they can plug, as well as moonlighting, a Filipino word for extra work on the side.

Here's an idea, however. Before you look any further, consider retiring consumer debt. Immediately, you'll free up cash. Instantly, you'll benefit from lower blood pressure or more peaceful slumber at night.

Expecting a sizeable Christmas bonus? Don't even think of throwing a Yuletide party for the Friday night videoke gang. Chip off a huge chunk from that consumer debt right away and opt for a potluck gathering.

If the Christmas bonus is not forthcoming, Augustus J.V. Ferreria, a registered financial planner, suggests simple credit substitution. Borrow money from the Social Security System or Government Service Insurance System, which give out salary loans at low interest rates and easy monthly installments, and pay off the credit card debt (and here we go again: Or the paluwagan or the friendly five-six guy on the motorbike).

If you choose to borrow from SSS or GSIS to pay off your credit card, you are most likely to get a congratulatory call from the call center agents of the company because you have qualified for a higher credit limit or a new promotion. Just say you're not interested and hang up. Ferreria says you have to put your beloved plastic in deep freeze.

"Don't use it anymore or else you will actually increase your debt instead of reduce it," he explains.

Balance transfer, add-on rates
Lately, more and more credit card companies have been offering balance transfer facilities with what would seem to be very low interest rates. The idea is to transfer an existing debt with a credit card company to another company and pay the full amount in equal monthly installments at low interest. In effect, you'll also be borrowing to pay off your loan.

What's the catch? Balance transfer add-on rates are not simple interest rates. You do not simply pay 0.75 percent per month. That huge billboard ad has very fine print that, in effect, says that the add-on rate is not the final interest. Of course, you can't see it from where you're driving or waiting for the traffic to move.

Add-on rates mean the effective interest rate charged is added to your full payable amount, and that amount is divided by the number of months you want to pay your debt. A 1.5-percent add-on rate, for example, can have a final interest of up to 32.4 percent a year, depending on a certain "factor rate" used by the credit card company and the term of your loan.

The wildly confusing thing is that the computations are not uniform across banks. Finding that final interest rate is not as easy as multiplying by 12. Decoding it can be very tricky. The final interest rate will still be lower than the 42 percent per annum most banks charge, but they are not as low as those ads make them to be.

Managing debt
Credit cards and credit lines are useful personal finance tools for those who know how to use them. But if you feel like you're getting flummoxed by all the variables, here are some more tips to manage your debt:

1. Prioritize. Writing down all your debt may be a scary thing to do, but you need to get a grip on how much you really owe. (Don't forget the loan your mother or father extended to you).

2. Focus on where you're bleeding the most. List down all your debt from highest interest to lowest. Then hack off the one with the highest interest rate first while paying the minimum on the others to avoid late payment charges. Once you're done with the first, most difficult debt, add the amount you paid monthly on that account to the second debt, effectively pushing down debt at an accelerated pace. Proceed until you finish paying all your debt. This way, you focus on where you're bleeding the most.

3. Avoid new debt. Credit card companies are aggressively looking for new clients, and old clients who will want to swipe more. Just remember that if you can't pay in full, then you can't afford to swipe.

4. Save, save, save. Keep a healthy emergency fund of three to six months of your monthly consumption so that you don't have to borrow heavily when you need the money.

(For more personal finance articles, visit Inquirer.net's personal finance blog at http://blogs.inquirer.net/moneysmarts.)