The Great Paradox!

It is really a great paradox. Fely and I know how to get our companies cost down, and bring our company’s operations to profitability but our own personal cost and cash flow were in shambles. So we really had to seek wisdom by attending seminars that increased our Financial Intelligence.

We are really so thankful to the Lord that we met Bro Bo. Not only were we able to have a Spiritual Mentor, but also a Financial Mentor that enabled us to extricate ourselves from the pit of debt. We were led to people who gave us the knowledge and wisdom to fix our finances, and eventually made us rise from our debt!

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A Classic Story Why People Get Into Debts...

Ruby is a classic story. She is a high flyer both in her academics and in her career. She earns 6 figure incomes at the time when her peers struggle to get a good pay. She was happily married and with a kid. And she had many friends. But all this took a nose dive when she committed a big financial mistake. She got into a business partnership which she totally did not understand. In spite of the business losses, she did not properly address it for she was comfortable with her 6 figure income. She thought that the solution to the business problem that was in the losing end was to borrow more money to infuse in as capital. So she borrowed money from family and friends, and from credit cards confident that she could pay it off with her salary and bonuses. But a big twist in her career happened. She was forced to resign from the company she was working for. Thus, payments to her loans were defaulted. Once again, she resorted to heavier borrowing even at a 20% per month interest charges. A desperate move that led to further desperation. She did not had any emergency funds nor savings, so she had to pawn and sell everything she can for four months she was jobless with lots of debts. Not only was her financial life in shambles. Her marriage collapsed to the pressure and she separated from her husband. Most of her friends abandoned her. Her consolation is her family that had had been very supportive of her plight. She committed the mistake of getting into a business that is not in her competency. She also failed to get a coach.

Rose, Roger and Ruby had gone through painful experiences, and mistake that caused them to sink into the debt trap. Like us, we got into our financial woes for we were financially ignorant, and so comfortable earning a living through our employment which is not permanent. Like us, they resorted to so much borrowing instead of doing the right thing.

Sickness can Lead to Debt...

Another guy we me met who is now deep in debt is Roger. His case is common to most Filipinos who have parents or siblings who goes through medical crisis. Most people do not even prepare for their own long-term health-care needs, more so for their parents or siblings. A real and widespread mistake for most Filipinos. Roger's mother had a stroke , not just once , but three times. This plunged the family into a deep debt hole. Being the eldest in the family, and being single, set him up to take care of her mother's needs.

In the beginning there was no problem for he was earning well and could support her mother’s needs through his commissions from his job as top notch salesman. However, the economic crisis that hit the US in the year 2008 had their company reeling into the negative territory. This is because their main customer for their products and supplies was USA. add to this, her mother did not have any healthcare protection, nor are they financially prepared for one . Her mother incurred more than millions of pesos in both the hospitalization and medications. Without healthcare, and no money in savings for medical emergencies, Roger resorted to borrowing money from relatives and friends, thus getting him into 7 figure debts which was beyond his capability to pay due to low to no commissions.

Other Mistakes That Can Happen To Us....

In our mission all over Asia and Philippines, we also met a lot of people who are in debt for many other reasons. We would like to add their experiences and mistakes on this Chapter in the hope that you may be able to pick up the lesson from their experience so you can veer away from them and avoid the same trap. There were even those who took their own lives. In our mission in Vietnam, a week before we arrived, we visited a friend, and he told us that in their apartment building , there was a ”local” (Vietnamese) who jumped off the building because of debt. In Singapore, about a year before we came, a guy jumped into the rail tracks to a rushing train to kill himself again because of debts. In Dubai, it was even in the front page, Filipinos were in jail because of credit card debts. Family and friends, dear close friends in the USA had their homes foreclosed due to unpaid amortization. Many people all over the world are indebted for one reason or the other.

We met Rose who spent a fortune in politics, Roger who is unprepared for the medical needs of his mother, Ruby who went into a failed business partnership. Let me share their stories.

Rose had 8 figure debts. She had so many properties but none of them are performing assets. Their monthly expenses to maintain their properties, and their numerous vehicles are way beyond their means. They are politicians in their home province, and they do spend millions in elections. Unfortunately or fortunately, they did not win. We see a double mistake in their story. First mistake is that they accumulated nonperforming assets. They have virtually a financial hole where their income gets sucked in. The associated costs to maintain their cars and houses just get them to the debt hole deeper. Their cash flow is perennially in the negative territory. Add to this their second mistake which is spending too much in their political ambitions. We dared not ask or dwell on how they recover what they spend in politics.

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Mistake Mistakes Mistakes ... Debts....

Not only in gadgets or appliances did we have this malpractice of buying what we do not need. This also extended in buying our groceries. Since we have four kids; two boys and two girls, all of them buy their own brand of shampoo when they could buy just two. One for boys and one for girls. In essence, we also buy more than what is needed.

Second mistake: We buy things on credit and paid what is minimum due. We had seven credit cards and so we thought we have 7 additional source of funds to buy things we want. So we used our credit cards to buy things indiscriminately. Then we just paid what is minimum due not minding the interest charges that we had accumulated in time. Eventually the amount we have to pay for each credit card reached the maximum limit. Since we have negative cash flow, we had to default even on the minimum payments on each card, thus increasing further our payable amount with penalty charges. What we bought, we had been paying more than double because we did not pay on time and less than the required minimum payments.

Third Mistake: We did not manage our expenses. Instead of managing our expense, we resorted to getting loans. Fely and I changed our citizenship from being Filipinos to “Loandoners”! We got ourselves into all kinds of loans. You name it we have it. Salary loan, Pag-ibig Loan, Coop Loan, SSS Loan, Pawnshop loan, even loans from personal friends. We failed to control our expenses. We did not analyse what we were spending on. We spent beyond our means. We do not track what we spend on. So, we also do not know where our money goes. We thought that getting into more loans is the solution rather than controlling what we spend on.

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What Got Us Into Debt ?

But what got us into this debt trap? We would like to share this to all of you so that you won’t repeat the mistakes we committed. It is now very clear to us why we had been drawn into our seven figure debts. But, when we were in that rut, or financial black hole, we also could not figure out our way out. We hope this sharing of our experience would enable, better yet, empower those who maybe in similar situation to be debt free. And if you are not inside the debt trap yet, may this guide you to avoid being in it. It is not a pleasurable experience.

We earn very well with six figure income individually as managers in our respective companies. We seem to be the regular successful career people with nice homes, nice cars, nice clothes, and well traveled. But that was what people see from us. But the truth was our net worth was in the negative territory. We had an 8 figure negative net worth, and our cash flow was negative too. Not just by the thousands but by 10 of thousands every month! This is all because of the mistakes we have made; we incurred 7-figure debts. This caused us sleepless nights, and irritations, and fights. It affected our marital relationship. We were financially stupid to say the least. It was good that we were already involved with a Marriage Encounter Community which mitigated our situation. If not for this, we could have been one of the marriage splits due to financial issues.

Our First major Mistake: We bought things that are not necessary or needed. If there are new gadgets, or appliance we bought it even if we don't need it. Every time there is an appliance mid-night madness sale, we were drawn into it to look into the latest gadgets or equipment or appliances. We specially love cameras. We bought one camera after another even if the previous one is still working fine. Same with cell-phones. We buy one after another and we end up not with just one but two to three phones. We also bought television sets one after another. But we seldom watch TV! One night, Fely and I went to a midnight madness sale as if we were hypnotized and magnetized to the mall by the four letter word SALE. In that one night, we purchased on credit, using our favorite credit card appliances and gadgets worth more than 200,000 Php. We spent on things we actually did not need with money we have not yet earned. And we spend big time!

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So In Debt... sounds Like Death

We conduct Financial Coaching all over Asia, and all over the Philippines. Fely and I always ask the question, "Who among you don't have debts?” More often than not, no hands are raised. When we were asked the same question five years ago, we also did not raise our hands. But when the question was re-phrased "Who among you have debts?" we have to raise both hands and feet! For we indeed were buried in debt. Seven figure debts, from seven credit cards. Perfect financial disaster!

It was a harrowing, unpleasant, and painful experience! Fely and I had sleepless nights thinking how to pay up the next payment dues. We don’t even have money for minimum payments. Credit card companies temporarily declined our credit facility. We received more frequent calls reminding us of our payment obligations. Every time the phone rings, my (Fely’s) heart beats faster, and worries caused headache. We had so much tension. I (Fely) felt that we were in a dark pit and could not get out. Coupled with this problem with our debts, the problems and issues we faced in our jobs, we were like a walking bomb always ready to explode. So beware, do not get into the debt trap. It is dangerous to your health... And to your hair (check Benj’s hairline)! Every payment due dates for each of the seven cards, Fely and I are always short of cash that we even had to swallow our pride and resort to borrowing money from friends. For me (Benj), it was the most humiliating experience.

We also had to make cash advances from one credit card to pay off another credit card. And more often than not, we missed payments on due dates causing us to pay more in view of the additional late payment penalty charges ballooning further our debts on credit cards from 3.5% to 5% per month. The most difficult months comes when it was due also for our children’s tuition fees. We got ourselves into a dark cave where we couldn’t see any light.

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How to Create Good Debts...

There are Good DEBTS . Debts are not created equal so to speak. For example, if I placed the 50 thousand on an investment that earns you more than the interest payments I make on the 50 thousand pesos I owe, then, this is "good debt". My coach told me that “Top Priorities in debt management are the bad debts. You can leave the good debts pay for itself.” Classification of our debts into good and bad debts therefore was the first thing Fely and I did in our own debt management. 

Second thing we did was to prioritize payments for bad debt that has high interest rates. Then, we created a definitive elimination plan defining the amount to allocate for each bad debt to eliminate it on a particular timetable.

Debt consolidation is also a way we expedited payments of our bad debts. This means that all our existing debts were moved to a single loan on the creditor with the least amount of interest charges and longest payment terms. One particular example is a 500,000 Loan that we moved from the credit cards which charges us 3.5% to a bank loan that only had a 7% annual interest charges. So this is another strategy of using Good Debts to eliminate the Bad Debts.

Will share about what other ways can we get out of the debt trap. For now, it should be clear that we must take serious effort in managing bad debts before we even embark on investing for the long term. 

You need to humble yourself and find a coach. We can be your coach. IMG Financial Coaches had been my mentors. Now I mentor many others. That is a great privilege and benefit of being an IMG Member.

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