My Very First Guest Post

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Are you having trouble managing your credit card? Why don't you read my first ever guest post at Khoa Bui's blog Secrets Entrepreneur. 

Click here to read the post.

Please read my guest post at Secrets Entrepreneur and leave your comments, additional ideas, your experiences with credit card and how you manage it, and also suggestions that can help others make well use of their credit cards there and in here.  

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WAYS TO BE DEBT-FREE: Why Do You Need At Least One Credit Card?

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source: http://howtocleanupyourcredit.org

Days ago I submitted an application to raise my credit card limit with my Bank of Guam Visa  Card. Luckily they gave me a 150% increase of my current credit limit citing that I have a very high credit score. 

Now in the first place why did I requested an increase of my credit limit?

source: http://ktrmurali.wordpress.com

 

But first let me warn those who are still working on their credit card debts. If you still have credit card debts I don't recommend you to ask your bank or card issuer to increase your credit limit but rather you should cut your credit card and start paying your credit card debts before your interest gets bigger than the principal.

Ways to be debt free: How to get out of debt fast

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source: http://harmonizingstatements.com

The fastest way to get out of debt is get a loan on another bank and pay your loan on the other bank or lending institution.

Just kidding! Actually that is the fastest way to be buried in debt and that is one of the sign of one's credit addiction.

source:http://www.ehow.com

So how does one get out of debt fast? Its a question worth a billion dollars. There are so many ways but here is what I know, read and learned.

There are two components to get out of debt fast:

One is to pay the debt with the onerous terms first.

Second is pay more on the onerous debt that will take lesser number of payments to zero out.

So simple right? Lets take it one of the time.

What is "ONEROUS"?

source: http://ravenesquetarot.com

Onerous as define by Cambridge Dictionaries Online is "difficult to do or needing a lot of effort" in other words "burdensome". A debt or loan is burdensome if it charges a higher interest. So for example 

a credit card debt which charges an interest of 1.5% per month is onerous than a loan in a bank that charges 8%. Why is that so? Do remember that the word "interest" in the banking system signify a rate that is for a year thus the terminology "per annum" which is Latin for "per year or annually".

Thus the actual rate on the credit card is 18% per annum. Why do credit card companies state there rate per month? Because it is more attractive than stating it per annum, now you know. 

But the onerous classification should not end in the interest rate. What if you owe only 10,000 pesos in your credit card but you owe 500,000 in your bank loan? See the big difference if you calculate the actual interest. The point of paying debt that are more onerous than the rest is to avoid paying more interest.

Now why do we have to pay more on an onerous debt with a lesser number of payments first? Again the purpose of this is to avoid interest. 

If you pay a debt with a onerous debt with a lesser number of payments more you are actually shortening the number of payments. When a debt requires a lesser number of payments it means you are paying bigger amount per period on such debt. 


When you pay more on such debt or loan the principal where interest is base on becomes smaller each time payment is made thus the interest you will pay will shrink as you pay it. When the principal shrinks in that manner it means your debt balance is dwindling faster and it is there that you save on interest and quickly pay your debt.

If you noticed Debt 2 which originally needs a payment of 2,000 pesos for 25 installments will be fully paid in only 9 installments while Debt 3 which originally needs 33 installments of 3,000 pesos is now fully paid in 16 installments. 


That is what you call getting out of debt fast.

Link to check out: http://s3.amazonaws.com/TracePDF/ThinkRichYuppiesFreeChapter.pdf

Ways to be debt free: How to correctly use your credit card

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 source: http://www.creditcards.com

A lot of people now a days use the plastic.

If you are in the Philippines and you are employed by one of the top 1000 companies you might get a pre-approved credit card in the mail. I remember when I was working with Orica Philippines I got 7 pre-approved credit cards. I activated 4 or 5 but in the end close them and maintained my BPI Edge card.

The problem today is that most people who get such credit card in the mail don't really know how to use it. They thought that it is cool to go out and treat your group and show of that you have a "plastic" to charge your spending. Not so good idea.

Also many people only pay what the credit card say: Minimum payment. So they swipe their credit card for a flat screen TV, a new android phone, lunch at Burgoo, and a weekend gateaway in Boracay and their credit card statement only says Minimum payment is Php 980.00. They go to their bank or payment centers pay Php 980.00 and life goes on.

That is the very reason why so many are buried in debt. They don't know how credit card works thus they end up buried in credit card debt. And after being harassed by the credit card company they say credit card are bad and they wont get one anymore. 

So how can you and me really make well use of credit card?

Let's break it down to advantage and disadvantage and how to work on some ways how to avoid or turn around from its disadvantage:

Advantages of a credit card

1. Good for business by delaying cash outlay thus keeping your money in the bank and earning interest

If you are in business having the means to delay payments is a good means of leveraging. We call this OPM which stands for "Other People's Money". For example you are in the business of cake delivery, you can buy the Red Ribbon cake using your credit card, delivering it and receiving cash payment. You got cash right away, you are able to deliver, you get to hold your money in the bank, earn at a profit, and do another purchase but not worry of where to get the money to fund your business now. With all the on hand money you got from collections upon delivery you can put it on the bank and earn an interest and pay your credit card after a month.

2. Earning other perks

Most people purchase because of the free perks one gets when reaching an amount of purchases. Most credit card company tie up with airlines giving us mileage points like PAL's Mabuhay Mileage Program. So after charging some purchases you get to have a free flight, that is cool.

3. Establishing a credit record

Having a credit card is the easiest way to established a credit record. I remember when I first came here in Guam that they cannot give me a credit card because I don't have a credit record. Good thing my bank, Bank of Guam, allowed me to open a credit card by placing a security by opening another savings account(they required me a deposit of $1,000.00 equivalent to my credit limit) and handing them my passbook. After a year I requested release of my passbook all is well.

4. Good for emergency

It is a fact sometimes it is unavoidable thus having an easy access to pay will help.

5. Proof of identity

Some credit card act as one's proof of identity. Most offices can check your profile or identity through a check of your credit card record.

6. A good way of keeping spending record

Most people are lazy recording their expenditure but when one's spending is charge using credit card  one has an instant record. With online access one can check where have one spent such amount thus able to track one's spending.

7. Worry free from carrying cash

If you are traveling having a credit card is a good idea. It eliminates the burden of carrying cash which might get lost, the worry of converting and exchanging money, and easy tracking for your love one's when you get lost.

Disadvantages of a credit card and how to avoid or turn around 
from it

1. Getting buried on debt

Most people have no control of their spending thus they end up with huge credit card debt. Even worse is when one becomes so depending to the "plastic" when one pays another credit card minimum payment by taking cash advance form another card.

How to solve this?

It is sad to say that one has to impose self-control. Stop purchasing unnecessary stuff especially when it is a consumer goods like gadget, restaurant dining, signature clothing, and other "wants". It will give you withdrawal symptoms in the beginning but unless you discipline yourself you wont be able to  get out of debt.(click here to read more about this)

2. Paying more due to interest

This problem is brought about by paying only the "Minimum Payment" . There is a simple truth which most credit card holder ignore about Minimum Payments. Credit card companies show you the "Minimum Payment" so that you only pay a portion of your debt, incur interest on unpaid debt, and pay various charges due to your late payments. Various charges like late payment charges and the likes is where credit card company earns.

How to avoid paying more?

Pay the whole amount in your credit card statement. When you pay the whole amount you are able to avoid incurring interest and other charges at the same time avoiding having a bad record of non-payment. Cant pay the whole amount? Pay more than the minimum payment. Pay at least 50% of the entire statement amount to lessen the interest that credit card company will charged your debt.

3. Having lots of receipts to keep to be able to track spending

In order for one to control spending one has to keep receipts and be able to arrange and organize them but this sometimes become a hassle. Most have an online statement to solve this but you can also use other online programs which can help you track your expenses.

One is Mint.com

It is a free online service that simplifies your expense tracking and other finance stuff to take care of. You can visit their site at www.mint.com to learn more

4. Developing a spending addiction

With such power on hand you might not be able to tell your self when to buy and when not to buy. With the marketing machinery of credit card companies you cant just say no to a free movie ticket on the first screening of an upcoming movie only if you buy the latest clothing line of Levi's . Or maybe there is a raffle and the only way to enter it is to make a 1000.00 peso purchase to get one raffle ticket and so to join in you have to a lot of thousand bucks to get more tickets.

How to tame the green monster in you?

Set priorities. You have to list needs that you really need and only charge such needs to your card. Also always be ware that your credit card has a credit limit. Always spend only 50% of your credit limit never ever max it out or else you will fall to disadvantage number one.

As I remember Bob Procter saying "Make money the work for you not you working for money" we must make the best of credit cards. It is good for business as long as you are able to make timely payments and it could be a friend when you need it most so don't max it out and make sure you have enough funds to pay it when the due date comes not you have expected money to come to pay it on due date. 

Investing word of the day: Leverage

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 source: http://www.etftrends.com

Hi it's been quite awhile since I posted some investing words to think about.

So lets start with LEVERAGE.

Investopedia.com defines leverage as :

1. The use of various financial instruments or borrowed capital, such

    as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with

    significantly more debt than equity is considered to be highly 

    leveraged.

Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home. 

So basically what does this word mean to us? 

Well leverage is taking advantage of available means to increase profit. To make it simple let's use OPM(Other People's Money). 

For example since Christmas season is around let say you wanted to sell those beautiful parols but right now you don't have enough capital to buy such. So you decided to find the manufacturer to make sure you get it at the cheapest price. So you went to Pampanga and was able to find the manufacturer. 

But even though its cheap at the manufacturer you still don't have enough capital of your own so you ask your brothers and sisters to lend you money. And so you got the money and got the parols. Displayed the parols in your house which is along the busiest road in your subdivision and by week's end you sold all the parols.

So where is leverage there? That is where OPM(Other People's Money) come. Well you were able to make profit even without you shelling out cash to finance your purchase.

By that you were able to increase you earnings by 100% if you fully financed it with borrowed money.


The same principle is used in Larry Gamboa's book Think Rich Pinoy(an adaptation to Robert Kiyosaki's principles in the Philippine setting).

                            source:http://thinkrichpinoy.com

source: http://fireballbooks.com/ThinkRichPinoy/

Larry and his partners scout banks for foreclosed properties that are auctioned at insanely low price. With a required deposit of only Php 25,000.00( this is the minimum I think) they were able to join the auction of foreclosed properties and the bank will even let you pay the property at installment basis.

So Larry Gamboa and company are able to leverage on their buy and sell project because it seems that they didn't even empty their pockets to fund the project because they borrowed the fund they need to the same bank who  sold the property. 

That is what we call leverage or in our Pinoy lingo OPM ;)   or better yet DOING MORE WITH LESS

source: http://www.healthy-holistic-living.com

Ways to be debt free: What now?

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                                                       source: http://7million7years.com

Its been awhile since I wrote something about this topic. If you haven't read the first part click here.

In my last post we talked about accepting that you are in fact buried in debt. It may sound crazy or something but as any other form of addiction acknowledging your situation is the very first step. Now the next thing one should do is to make an inventory of whatever one has. 

When I say "whatever one has" that includes your assets and your liabilities.

Do you have a car? Do you have a house or a laptop? These things are your assets. Assets are things of value that you own. 

Do you have a credit card loan, a bank loan, a mortgage, or a "utang sa 5/6" ? These things are liabilities. Liabilities are things that you owe.

List these things separately. You could have a notebook with the pages equally divided of which the first half would be your ASSETS and the second your LIABILITIES. Make it a four column page. The first would be your description or name of the asset or liability, the second is the amount related to it, the third is your plan for it, ans the last is where you can either put a tick mark to indicate if the plan for it is done or a date of which you want to achieve such. See  sample below:

Now just like the above examples you have to decide which assets of yours can go away and which one are necessity. I know this would be gory but hey remember you are buried in debt and if you don't get out of it fast the more you will be buried in the pit. Oh these is one of the secrets ... you must get out of debt fast.

On your liability section determined which one are onerous or burdensome.

Lets define onerous, courtesy of wiktionary.org

Etymology

From Latin onerosus (“burdensome”), from onus (“load”).
Pronunciation

    * (UK) IPA: /ˈəʊn.ɜː(ɹ).ʌs/ SAMPA: /"@Un.3:(r).Vs/

Adjective

onerous (comparative more onerous, superlative most onerous)

   1. burdensome; difficult; wearing; tiring

Antonyms

    * gratuitous

Related terms

    * exonerate
    * exoneration
    * onus

Why list liability in the order of burdensomeness? 

As I have said awhile ago the faster you pay your debt the better. So the faster you pay debts or loans with hefty interest the better because you save money paying the interest attached to it. So looking back at the above I guess the Php 650,000.00 bank loan at 15% per annum should be settled or paid first to avoid paying interest.

Now looking at your assets, list them down in the order of greater fair value. Sorry I never told you. Maybe your laptop cost 25,000.00 when you bought it 3 months ago but if you are to sell it  now probably you will only get 10,000.00 to 15,000.00. One has to consider an asset's fair value. 

Wikipedia has this to say about fair value:

A rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:

    * acquisition/production/distribution costs, replacement
      costs, or costs of close substitutes
    * actual utility at a given level of development of social
      productive capability
    * supply vs. demand

and subjective factors such as

    * risk characteristics
    * cost of and return on capital
    * individually perceived utility

What does this mean? Your assets may have a lower or higher value depending on how much is the accepted fair value at the time of sale. So what can you do to be able to sell your stuff to pay off your debts? I guess these are my only advice in regards to this matter ; first make sure people who are interested to buy see value in your asset and second make sure such are in good shape.

Looking at the two sides you might notice that you have a difference of negative Php 197,500.00

This is what we call Net Worth. To read about my post regarding Net Worth click here.

Having a negative net worth signifies that you are really buried in debt while having a break even or a positive net worth means you are able to leverage your assets and liability to the full potential. 

So what is one of the things that you should do to be debt free? 

You have to list your asset in the order of greater fair value and liabilities in the order of onerousness. Pay first your onerous debts and make sure your assets has greater value so that you can get as much from it.

Ways to be debt-free

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                                source: http://antipinoy.com/

This is a follow up on my previous blog "What it means to be debt-free" if you haven't read it yet click here to read it.

So you decided to be free from your debt but your wondering how in the world can I do  that? So this topic will be  in parts since it covers a lot of things.

Let's discuss the very first step. Step one is accepting that you are buried in debt.

                                              source:http://interacc.typepad.com/synthesis/

I know you are lost why to be debt free one should accept that one is buried in debt. Just like any other addictions, the first step towards freedom from it is to acknowledge that one is addicted to it. Accept the fact that you are in debt. Most people will have a hard time doing this because of pride. They would say "no I'm not buried in debt, I'm just behind my payments don't worry money is coming".

It is sad that most Pinoys would just say that. They don't want to accept their situation thus they are always in denial mode. And so doing in order to cheer themselves they buy. They go shopping and go malling and when they see something they've always wanted they buy it and charge it to their credit card.

                                               source: http://blog.beliefnet.com/onecity/

Or if they are upset they escape by going somewhere else like going to a resort or watching movies just to forget that they are buried in debt. I remember my brother's comment about how so many people have the guts to get a loan to pay up another loan just to have money to spend, he says "Basta at least sumaya sila sa inutang nila."

So the very first thing is really to accept that you are buried in debt. It creates that realization inside of you that you have to do something about it.  That one must be responsible for it and not escape and show the world that everything is okay because it is not okay.

                                            source: http://www.selfishprogramming.com

Ever seen movie scenarios where the Dad or Mom secretly works in a night shift low paying job to support their family after losing their job while their children are acting like rich kids getting this and buying that. That is so pitiful and yet the parents keeps on denying it but in the end everything is ruin.

So remember step one: ACCEPT THAT YOU ARE BURIED IN DEBT.

 vv

What it means to be debt free?

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source: http://mamacanon.blogspot.com

We have been discussing stocks for quite sometime now and I would like to step back and talk about some issues that a normal person would like to tackle.

I was reading the blog Simple Mom regarding how she and her husband finally able to say to themselves that they are debt free. It came to me that most Pinoys are becoming like most Americans and that is living in debt. And with that I wonder if the same mortgage crisis happen in the Philippines when most Filipino families will become homeless because they are not able to pay their mortgage on their house.

One rule that me and some of my stock investor friends have always reiterated is to invest only totally free cash. There was one comment in one of my post asking how can one have extra money for investing when upon receiving her paycheck nothing is left. The thing is to be financially free or for this case debt-free is to have a discipline not only to master but also live on a day to day basis.

That is why I recommend Bo Sanchez's book Simplify and Live a Good Life. Being debt free is a goal which needs a plan. So right now sit down and look at your current financial situation. How many debts do you have? It could be a car loan, home loan, credit card debt, school loan, or any other loan you made out of emergency needs. List them down in the order of which is burdensome that is which one has a higher interest rate. As much as possible pay up first loans with higher interest and just give some to those that has a lower interest. This will save you from the dreaded charges that loan companies charge you.

                                     source:http://thedebtfreeusa.com
 

Start small steps towards your debt free life. And soon you'll realize the value of not owing anyone. There will be no more deadlines to catch. There will be no more allocations to be made for creditors now you can put those extra cash for investments that would generate more money for you till it comes that the money they generate will be more than your wages thus giving you passive income.

There are so many benefits from becoming debt free. How about you what do you do to become debt free and what are the benefits you enjoy now that you are now debt free. Share your thoughts.