Indonesia Anonymus

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Friday, June 20, 2008

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...

11 Comments:

Blogger a0z0ra said...

In here (USA), we have this thing called credit score which is seen as your financial IQ. This credit score will determine your interest rate in case you need to open a loan from a financial institution.

One way to increase the score is to open cc (credit card) accounts and never missed the payment. When you apply for CC, you reduce your credit score. However, provided that you never missed the payments, the longer you have them the better your credit score will be.

How about in Indonesia? Do you guys have it too? I'm curious.

12:42 AM  
Anonymous Andrea Smith said...

There are various debt consolidation programs, which gives you a lot of options. You could either select a paid service or go for the many free services available. Thanks for the article!

4:30 PM  
Blogger Ultratupai said...

Credit cards prop up the consumer society. It is a global phenomena punctuated by "brands" and advertising. I say spend to the max and walk away from the debt. If everyone did that all at once it would be quite interesting.

3:30 AM  
Blogger Indonesia Anonymus said...

a0z0ra,
Not as far as we know. There is no such thing as credit score.

ultratupai,
Yes it would. Actually the credit card business won't be as lucrative if everybody does that.
Unfortunately, as you can see, some people prefer to go to debt...

4:30 PM  
Blogger Rob Baiton said...

Legalized loan sharking that includes stand-over people (aka debt collectors) who threaten to jail your grandparents if you do not pay your debts.

It is not only interest payments but all the other fees on credit cards and banking services that make being in debt truly scary.

Making the minimum payment keeps the debt collectors at bay but you will never get out of the hole.

3:26 AM  
Blogger Akhyari said...

i like the tittle, bro. Initially i thought the article was about Indonesia..haha. But dont u think that Indonesia national debt is bigger than we can repay?
Well, there's not so much idle money to do development and raise the GDP. Actually we can just hold elections (note the 's') only once in 10 years, no need pilkadas. Hundreds of trillion will be there for development.
Again, i like the moral of the story.

10:56 PM  
Blogger Jakartass said...

When I came to Indonesia 20+ years ago I had a credit card. The problem then was paying off the debt to a British card company: the banks here were totally inefficient (= corrupt?), and the postal service was equally useless.

Eventually I got a letter from some British lawyers telling to cut up my card, which I did, because I was facing legal action.

Never hearing anymore, I think I got a 'free' air ticket back to the UK, for which I am grateful.

Now, I pay off my credit card when I'm in the 'red', and keep it in credit. My 'score' may be good, but they aren't going to increase my credit limit any time soon.

2:26 PM  
Blogger Antonius Bram said...

when i go to the workforce in 6 years time or even more than that years, i'm not interested in owning a credit card. i rather wait until i've o buy the things got enough money that i desire

1:39 PM  
Blogger Rishardana said...

It started harmlessly enough for me, with one BCA CC, for watching movies (you know the famous 2 in 1 programs they have). Pretty soon I got another, with other benefit, extra discount in some fancy places.

Last year was the turning point though, when the statement came with 200 thou rupiah for the interest alone. I said that's it, started cutting all of them credit cards and resort back to old fashioned cash.

Now my mind is more peaceful when the end of the month come :D

Thanks for the article, a lot more people need to know this.

4:20 AM  
Anonymous Anonymous said...

Oprah has covered it, so does RT Kiyosaki. what's the big deal??
The root of the problem is quite simple:
Young generation are too pampered to know how difficult it is to start from scratch, literally as when our migrant forefathers did decades ago. They are the product of top-notch college/univ, get a huge paycheck and think money falls right out of the sky.

I have a simple experiment. Try slashing off your children's allowance and take away their car, even the most rebellious will crawl right back to mommy's bosom.

12:15 PM  
OpenID femmys said...

Thanks for the article. I saw on Oprah about this problem and I thought, those poor American people. What are they thinking, going into debt like that? Never thought that this problem plagues our Indonesian younger generation.

7:13 PM  

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