Recently, I shared how I dropped my credit card debt of Php 700,000 to Zero.
If you haven’t seen the video, here is the video and the transcript. Hope you get something from this and learn from my experience.
[GINGER]: Hey everyone! I’m Ginger and I’m EJ and we’re here to bring another finance video from Team Arbo (say together). Haha! I think we should always do this intro! Haha! Anyways, we’re content creators and startup business owners who love sharing our experiences on personal finance, investing, business and parenthood. If you like our videos, please subscribe, share this video, click on the notification bell and leave a comment so that we can get to know each one of our, our dear viewers.
[EJ]: Today, we’ll be talking about how Ginger’s credit card bill increased so much and how she dropped her Php 700,000 credit card debt to zero in one year.
[GINGER]: To tell you honestly, I’m a bit embarrassed to share this with you, because I know exactly what I did wrong. And let’s just say, they’re not very good reasons. But I’ll still share what happened so that you can learn from my mistakes. And after each mistake, we’ll also talk about what we did to avoid making those mistakes again.
The first mistake that I made was to mix business expenses with my personal expenses. I knew that these business expenses can be reimbursed by the company anyway, so I just used my card for a lot of them. But, it took me a while to find the time to ask for reimbursement (with the tons of things that I do every day), so instead of being paid right away, my credit card bill, with both personal expenses and business expenses, kept on incurring interest.
[EJ]: To fix that, we made sure that all expenses were charged to the company credit card. If you have a business, you can ask your bank for the requirements to open a company credit card. This will make it easier for everyone in the business since this will also lessen reimbursements, which is usually a manual process. So aside from being easy, your finance team will also be happy!
[GINGER]: The next mistake was ordering too much take out and delivery. Personally, I usually order food either because I feel lazy and I don’t want to prepare anything OR I feel that good food is a reward for a hard day’s work. Now, there is nothing wrong with enjoying what you earn, and we believe that food is not the worst way to splurge, BUT, I think I overdid that — and soooo, I always went beyond budget. We would reach Php 30 to 40 thousand pesos for groceries and food delivery, and we just had 3 adults and 1 child that time in this house.
[EJ]: The way we fixed this was to set a groceries & takeout budget for the family. We set our food and grocery budget to Php 20,000 and we consistently monitor our spending every week. The good thing about this is that this is a pretty easy to control expense. If I feel like ordering something, just look at our budget and if we have some left, we order, otherwise, no choice, we cook. 🙂
[GINGER]: The next mistake was not knowing where I stood in terms of my debt right away. I just kept on delaying checking my bills. Honestly, there’s a lot of anxiety involved in doing this especially if you suspect that you spent a bit too much. In the long run though, by avoiding that quick pain I was setting myself up for a bigger shock later.
[EJ]: In this case, we really just had to bite the bullet. First, we did an audit of Ginger’s credit card bills. We listed down all her credit cards and the interest rate for each – not all credit cards are the same, they had different interest rates. We also looked for loans and searched for ones that offered lower rates than what Ginger had with her credit card. We worked on transferring the balance of Ginger’s high interest credit cards to the lowest interest loan that we found. So instead of paying 24% per year on the credit card debt, we were paying around 18% per year on the loan. Granted, the personal loan wasn’t able to cover all of the debt, so some of it remained on the credit card. For that remaining amount, we looked at her other credit cards – we transferred the remaining amount to the lowest interest credit card.
[GINGER]: By the way, remember to double check if the rate being offered is per annum (that means per year) or per month. 2% per month might sound lower than 13% per year, but if you convert them both to per year – 2% per month is 24% per year!
[EJ]: So with that in place, our next step was to keep up with the payments. There are two ways to pay off debt: the Debt Snowball Method and the Debt Avalanche Method. In both methods, the basic rule is that you must pay the minimum amount due of all your loans & cards – this will make sure you don’t incur any additional penalties and expense. Where they differ is where you put any extra money you have.
With the Debt Snowball Method, you use your extra money to pay the card with the lowest outstanding balance. The idea here is that you set mini-wins for yourself along the way and you get a psychological boost when you see your cards start getting to zero.
With the Debt Avalanche Method, you use your extra money to pay the card with the highest interest rate. This makes sure that you’re cutting the total interest payments you’re paying because you’re getting rid of the high interest rate cards first.
Ginger used the Debt Avalanche Method.
[GINGER]: Speaking of extra money, the last thing that I did was that I looked for extra income to pay off my debt. Now THAT was really hard. I already had a busy day with my startup and a lot of work in my events management company BUT aside from that, I would still create content for brands and advertisers. We also got into KonMari and discovered that we had so much stuff in brand new condition but were not being used – I sold those on Carousell. Between my influencing gigs and my occasional selling, I had extra money that I used to pay off my debt using the Debt Avalanche Method.
[EJ]: And that’s basically everything we did to pay off Ginger’s credit card debt. Now, It doesn’t mean that we hate credit cards. In fact, you can still use credit cards to your advantage when you know how to use them correctly. We’ll talk about how to use credit cards properly in one of our future videos.
[GINGER]: We hope that you learned a lot today, and we hope that you can finally pay off that credit card debt! If you like this video, please hit that like button, share this video, comment below and hit that notification bell.
[EJ]: This is Team Arbo, hope you have a nice day. See you in our next video!