Smile though your bank is breaking

Question: Every day, I wake up worrying about how to pay my burgeoning debt on top of the need to provide for my growing family. I am a single parent as my spouse left me over money problems. My two children have no inkling about our financial problems and I intend to keep it that way. They are the only ones keeping me from taking my own life and ending my worries. Please help!—asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph, Facebook and SMS.

Answer: The first thing you should do is smile, both with your mouth and eye muscles. Add a little laughter and you will feel endorphins rushing through your system to relax you. Now observe the following steps:

Lifesaver phase:

1. If your problem is with credit cards and you can pay the minimum, cut up the cards, then start with the minimum amount your credit cards bill you and continue to pay that amount without using your cards ever again. You will see that in less than three years, you will have fully paid your cards.

2. If you are not yet past due, you can avail yourself of refinancing/consolidation from a new creditor to pay your existing ones. This works only if the interest rate is the same or lower with the new creditor and if you can work out a longer repayment period so that the resulting monthly amortization will be within 30 percent of your gross monthly pay.
3. If you have assets that you can sell, sell them to raise cash to lower or possibly pay all your debts. Alternatively, you can take on a home loan with a much lower interest rate and at a longer repayment period, provided your home is not yet mortgaged. While the resulting loan amortization will be affordable, you must bear in mind that you are dealing with the prospect of losing your home if you default again on payments. So, be very religious in saving up for your monthly amortization.
4. If you are past due and collectors are hounding you, keep your lines of communication with your creditors and collectors open and updated. Ask both creditors and collectors for restructuring and even partial condonation (discounts). Creditors want cash and not your property and they know the hassles and costs of filing court cases. As such, they will be willing to enter into restructuring agreements albeit reluctantly at first. Philippine credit cards also have an interbank debt reduction program for people who fell into hard times and cannot pay their debts according to payment schedule. Check out www.ccap.net.ph/?p=623 for the details.
5. If you have friends or relatives who are willing to help you out, eat your pride and accept their offer as the second to the last resort in the lifesaver phase. While this will raise the eyebrows of many, sign a promissory note with these angels detailing the amount of the loan, interest (if any) and terms of repayment including past due interest.
6. There is also the Financial Rehabilitation and Insolvency Act that can help you settle your debts through court-administered programs. This is a costly and time-consuming endeavor that should be used as the last resort.

Recovery phase:

Live simply and within your means. Remember that you are never paid a salary or wage based on your propensity to spend but on your qualifications for work. If you are in business, you will earn based on what you can do for your customers and not what they should pay you for your desired lifestyle. Create and stick to a budget with the help of another, like a financial planner.