Debt Blue Sea

One younger staff told us a story: She is deeply in debt. Credit card debt. It started innocently enough until the bill grew faster than she can manage.
Now her salary is not even enough to get her out of it.
"I can barely afford the minimum payment every month..."

And just paying the minimum every month is pretty much a financial quick sand: You are going under eventually.

For readers who don't know, most of us here at IA are old foggies. We are from the previous generation, and previous generation are afraid of debt. Even when it is done under a disguise of a platinum card this or that.

Apparently it is a different story among our younger affluent Indonesians. One colleague asked her staff who are under 30:How many of them have credit cards, how many have more than one, and how many carry the balance to the next month (meaning not paying in full, hence technically in debt).
90% own credit card. 65% own more than one (24% have more than two), and 49% are in debt.

49% ! Almost half of her young staff are in debt !

And you know what the funny thing is? They don't even think they are in debt.
"In debt? I am not in debt. I do have credit card bill to pay every month, but I am not in debt..."

Well, sorry kids. If you have credit card bill every month, and you don't pay in full, and you carry the balance to the next month, that means you are in debt.

What's wrong with that? They asked.

Well, here's a thought:
We are not a financial service expert so don't quote us on this, but as far as we know, if a bank gave a loan to a customer, there is a regulation that prevents the bank to add the overdue interest into the principal and then draw yet another interest out of it. It's just not allowed (it is an Indonesian central bank regulation, if we are not mistaken. Readers who are experts on this please enlighten us. We will then correct this accordingly if we were wrong).

Is it allowed in credit card? How do you think your debt can grow so fast? Don't just take our words for it. Do your math.

Credit card is a legal loan shark of our time.

So why are our younger staff so vulnerable? Aren't they highly educated? Aren't they earning enough to be able to afford things without owing money?
Actually, that is part of the problem: They are earning more than enough to give them confidence that they will be able to repay whatever they owe. And so they go. Bravely into debt.

And then there is this one mentality: to spend now rather than later. The nightlife, the flat screen tv, the fancy dress, the sex in the city shoes...

Whatever happen to "work hard, be smart, save a lot" ? Or are we just getting too old to understand what young people are up to these days.

So here's our suggestion to our younger staff. We are not preaching and we do this because we care:
If you are already in debt, do your math and calculate how much you have to pay every month, to make sure your debt go down instead of up. Make sure you don't just pay the minimum. Do your math and do it yourself. Only paying the minimum is the same as preparing a rope to hang yourself.

If you are deeply in debt, but you are lucky enough to own a house or a car, use it as collateral to get a loan from a local bank. Use the money to get out of your credit card debt. It is a lot cheaper this way. The interest rate will be a lot lower. Your debt will be more manageable and will not grow out of hand.
Again, do your math before you take the plunge. We don't want you to still be in debt and lose your house and your car at the same time.

Then, after all is said and done, in the future make sure you pay your credit card bill in full every month. Learn the lesson.

Close the account, and cut the credit card in two? Oh no, we are not suggesting that. Credit card has its use. It's practical, it's convenient, and useful in times of emergency.

Just don't spend more than you can afford.

Oh God. Don't we sound like grandparents...