QUESTION: Because of emergency and other unforeseen expenses, I have racked up credit card debt. I hate the feeling of having debt. It scares me that I may never be able to pay them down, and the interest rates are discouraging. I would love to get some tips from you on how I can pay down my debt. Thank you so much for your help. – Johnny via e-mail

Answer: Ah yes, when you have credit card debt, it can feel like there’s a heavy weight on your shoulders. You want to do a number of things, but you can’t because you’re always thinking about the debt you have. It feels hard to relax when you pay more on interest month per month. Eradicating credit card debt will take a heavy weight off your shoulders. If you’re up to neck in debt, here are 5 easy tips to get out of credit card debt:

1. Use the snowball method

The snowball method is a method used to tackle debt by attacking your credit card with the smallest balance first. Just as a snowball is rolled and piled together to create a bigger snowball, the snowball debt method lets you start with the smallest balance to give you the confidence to attack bigger balances in the future. Paying off the smallest balance will make it easier and faster for you to pay down debt. For those who are new to saving and budgeting, starting small (read: paying the smallest balances first) will ease you into the habit of paying debt. If you start big and pay off the biggest balance with the highest interest rate first, this can shock you and make you feel like you’re not making any progress and you might fall back into the trap of accumulating more debt.

2. Automate payments

“Out of sight, out of mind” right? If you set up your account, so that your credit card dues will be automatically debited from your bank account, you’ll treat the money as if you never had it at all. If you choose to pay your credit card balance manually, you may be tempted to pay the minimum balance only to give way to other expenses you prioritize. By automating your credit card payments, you’ll feel like you didn’t even have the money in the first place. Even better is that you’re paying the full balance each month, which avoids extra fees. Multiple banks, such as BDO, BPI and HSBC, offer this auto-payment service. Just log on to your online account to apply.

3. Track your expenses

A lot of people get into credit card debt because they treat it as free money. It’s easy to hand that plastic to the register, swipe it, then sign. Until the billing statement comes. Then, you find yourself searching every corner of your home for spare change to pay your balance. By tracking your expenses (pro tip: have a separate category for credit card expenses), you’ll see where your money is going, and you’ll realize just how much you’ve racked up in purchases using your credit card. Tracking your expenses avoids adding to the debt you already have. Multiple phone applications, such as Expense Manager, Mint and You Need a Budget, allow you to track your expenses in a comprehensive manner (e.g. by timeline, by category, current balance, etc.).

4. Transfer balances

Multiple banks provide this service of transferring and consolidating all your credit card debt into one bank. To get the most out of balance transfers, transfer all your balances to the bank that offers the lowest interest. This way you’ll be paying less in interest, which can save you a lot. Late fees for credit card dues start at around 3 percent a MONTH, so it’s best to avoid sky-high interest rates as much as possible. By transferring your balance from one account with a high-interest rate to the one with the lowest, just imagine how much you can save. It’s best to remember that there’s no such thing as free money and the interest rates on credit cards will make you wish you never had a credit card in the first place.

5. Use a part of your savings

Have an emergency fund, it’s one of the basics of personal finance. This e-fund must be used ONLY for emergencies, nothing less; however some rules can be broken. If your e-fund is well-padded, if you have a continuous flow of income, if you have a partner that has his or her own income and emergency fund, if you have investments, THEN you can use a portion of your emergency fund to make a lump sum payment. Remember that in a savings account, you only earn 0.25 percent in interest a year, humiliatingly less than the 3 percent a month you pay in credit card interest. Consider using a portion of your savings to pay your debt down faster and avoid incurring the 3-percent interest a month.

Road to financial freedom

It’s a different feeling when you don’t have to worry about debt. You don’t feel like you have a rope tied around your neck. You feel like you’re able to save and invest earlier and faster. Having zero debt maximizes your opportunity to live a life free of worries. That portion of your income you used to pay down debt? Use that money to go on a much-needed vacation that is not funded by debt. Even better, use the money to start investing, saving for a house down payment, or whatever financial goals you may have. The bottom-line is once you pay down all your credit card debt, you’re on the fast track to reach a life free of money worries.

“The rich rules over the poor, and the borrower is the slave of the lender.” – Proverbs 22:7, ESV

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Question: Hi, Randell. My child has been working for five years already but I feel that I can do more to help him become financially independent. I’ve been helping him out by giving him a monthly allowance of P10,000, instead of him contributing to our expenses in the house. He was recently unemployed and lives in our house in Manila. I do not want him to have a hard time like I did when I was the same age, but I think he can put more effort into building his savings and becoming financially independent. I just don’t know where to start. It’s so common for us parents to worry about our children even when they’re already grown up. I hope you can help me with this.—Jose, 54 years old from Mindoro

Answer: Hi, Jose. I completely understand what you feel. We Filipinos have close family bonds and this kind of relationship also entails financial bonds unlike other countries where people are considered independent upon reaching 18 years old.

However, there is a fine line between helping your child and tolerating bad financial habits. Remember that doing this to your child today can get him the financial habits he needs for a better future. What will happen if you’re not there to support him? He might panic and get into a dangerous debt cycle because he fears to live below his means.

What you can do is have a talk with your child about the situation. Have an open conversation about the matter and he can voice out the reason why he thinks he is not self-sustaining yet even after working for a long time. I have seen that open and honest communication helps in situations like this; but you need to be firm. You can also clarify the instances where you can help him and when you will let him figure out things on his own. This way, he will become more discerning and not think of you as a financial cushion even for avoidable shortcomings. This will be a tough conversation but a necessary one. I know it’s not easy to resolve financial matters in the household but with the proper approach, this can do wonders for members of the family.

Another way is to still give the P10,000 allowance but make your child work for it. Have him work part-time in your family business or designate specific tasks for him like running errands for you in Manila if you need any help. It should be clear that he is not doing a favor for you so he needs to finish the tasks you assign to him. Your child is an adult now, you no longer have any financial obligation to him. It’s about time he learns that there is no such thing as a free lunch, so to speak. Also, be the example that he will want to look up to. You can’t preach that your child has to have a budget and be debt-free if you are not practicing this yourself. Your actions can serve as an inspiration to him to improve his financial status. Sometimes it’s necessary to impose tough love on our children so that they can value hard work and recognize the rewards of financial independence. We love our children but there are times we need to show tough love; this is the time to do so.

Remember, when we do help, let’s make sure we actually help and not encourage bad behavior, otherwise we do more harm than help.

Debt is something that robs a lot of people of hope. According to Hal Lindsey, “Man can live about forty days without food, about three days without water, about eight minutes without air…but only for one second without hope.” Simply put, debt puts a peso sign on how much of your future you spent in the past.

After going through a debt problem myself for the many years of my adult life and eventually being free from its clutches, I made it a point to  spend so much time telling others to get out of debt or at least manage their debt properly.

I have said time and time again the Bible is the best resource for wisdom on personal finance, among many others. But here is a huge “news flash” for you: With over 1,300 passages on wealth, the Bible is virtually silent on debt, at least to the borrower. Only ½ of one proverb tells us, “… the borrower is slave to the lender” (Proverbs 22:7). Since no one wants to be a slave, enough said. How do you get out of debt? Simply put, you need to be a good steward of your finances. You may want to read my other posts on debt or pick up my book No Nonsense Personal Finance, there is a chapter there dedicated on getting out of debt.

The Bible, however, has considerably more to say to the lender, such as those whom have been entrusted with money are instructed to use it mercifully. Nothing drives this home like Jesus’ parable about the servant who, after being forgiven a fortune by the king, fails to pass that same mercy on to another servant. Instead, he chokes him and throws him into prison for a relatively minor debt (Matthew 18:21-25). Jesus tells this parable to Peter, who like us, probably thought he was being surprisingly generous by offering to forgive his brother up to seven times. But Jesus makes it very clear that this is just the start. Jesus’ teaching echoes many other encounters people had with him, like the woman who, having lived a life of sin, came to him at a Pharisee’s house and wet his feet with her tears, then kissed them and wiped them with her hair (Luke 7:36-48). Her response to Jesus was the exact opposite of the inhospitable Pharisee, who offered no welcome to his guest. Why? Because the one who has been forgiven little loves little. But the one who has been forgiven much loves much.

Where does that leave us? If you are a lender, them you need to be merciful. If you are a borrower, you need to be wiser.

So what if you’re one of the millions of people who are trapped by debt? I have great news for you. God, not money, is still your master.

Money might dictate when you serve, or where you serve, but it can never dictate who you serve.

Whatever your financial position, find comfort in this: “…the Lord will reward everyone for whatever good they do, whether … slave or free” (Ephesians 6:8).

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