Getting Out Of Debt
Question: How easy is it to ask for a restructuring from my licensed creditors? I am past due with them for only a few months. Previous to being past due, I was always on time but able to pay only the minimum amount required. —asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: The management of lending companies are just stewards of money infused by their shareholders. Management’s marching orders are to ensure that shareholders earn the returns expected on their investments. Part and parcel of this obligation is to collect as much as possible on past due loans.
Therefore, if you are just a few months past due, expect that lenders will immediately reject any and all of your requests for restructuring. But what if you cannot meet even lenders’ minimum payment amounts for whatever reason?
Our advice would be to first look at what you own. You may need to liquidate some of your assets in order to meet your immediate obligations. This is the reason why it is always good to manage well your personal balance sheet or SALN (statement of assets, liabilities and net worth).
Look at your SALN now and assume that you will not be earning anymore. You can be considered liquid if you have at least the same amount of short-term assets that will or can be converted to cash to pay your short-term debts. And when I say short-term, that means within one year from now. In a situation wherein short-term assets are less than short-term debts, you will need to resort to the unhealthy practice of selling some of your long-term prized possessions like investments, personal effects and even property just to settle short-term debts.
So, don’t wait for the next payday. Look at your short-term assets to see what you can liquidate to settle your debts.
Now it is not uncommon to see people who also fail to have sufficient long-term assets to settle their short-term debts. In this kind of scenario and assuming there is no other recourse like balance transfer or getting a loan from a relative or friend, then the borrower will need to just persist in requesting his creditors for a restructuring while paying whatever amounts he can periodically.
The objective is to show creditors the intent to honor obligations and that a little concession in terms of time and perhaps interest/penalties plus a partial condonation of principal will go a long, long way. In requesting for restructuring, the borrow should start with what he can afford and work backwards to the interest, term and principal he can repay. All communications with lenders need to be documented so that proof of the intent to honor obligations is built up. And the written word is better than recorded conversations.
Getting out of debt is by no means short and easy. But rest assured that lenders are human as well who do understand debt problems. They will, more often than not, use out of court means to settle debt problems to salvage what they can so as not to incur additional expenses.
Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines. He is best-selling book author of Pwede Na! (A Complete Guide to Personal Finance) in 2004, and is the chairman and president of the Personal Finance Advisers Philippines Corporation.
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