Fri | Jun 5, 2020

Oran Hall | Hurt by credit card debt

Published:Sunday | March 29, 2020 | 12:44 AM

ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER

QUESTION: In 2006, I got a credit card from a bank. I was a security guard at the time and I was invited to take one. I used to pay well on my card until I couldn’t buy food or pay my rent. I managed to get a small loan from the same bank and was paying well until I lost my job. I decided to go back to school to educate myself not knowing the impact these loans would have on me and my wife. I went on to pay what money I found myself with until I just could not as I had no job, just farming.

I have been in my current job since 2014 and have been paying tax to the government, hoping to buy a house for me and my family. In 2017, I went to a bank to get a loan and they said I would need a credit report. I got the report but was surprised I owed so much money. I was able to settle $1 million of the debt and am trying to get a mortgage but my credit from 14 years ago is still hurting me. I would like to know when these bad things will get off my credit report and if Jamaica does not clear your credit after 14 years.

– Rowe

FINANCIAL ADVISER: Credit transactions remain on your credit report for seven years after the debt has been cleared, not from the date of the transaction. If you cleared your debt in 2017 – and you did not say that you did – it will remain on your credit history and impact your credit score until 2024.

Having addressed your concern, I need to address the issue of credit cards and how poorly they are being managed by their holders. I would never encourage anyone to just accept a credit card even if it is the bank that makes the offer, unless it is very clear about how the monthly payments will be paid.

Credit cards are not for supplementing income; they are tools financial institutions use to give credit – very expensive credit, on account of their high interest rates and how they are calculated. They should not be used to supplement income. In fact, they cannot supplement income. They drain income. Use them for convenience, meaning use them to reduce the need to travel with cash, but ensure that you have the means to pay in full by the due date.

From your experience, the card did not really help. It just caused you to believe you had solved your problem, but it did not because, although you were using it to pay for some basic needs, you were eventually unable to pay for current needs because you were using your money to pay for expenses incurred in the past – with interest.

One reason debt should be incurred carefully is that the future is uncertain. You pay your debts well today, then encounter problems tomorrow due to the loss of your job and sometimes ill health.

It makes sense to get a traditional loan to eliminate a credit card debt, but it generally makes sense to stop using the credit card while addressing the debt issue. Otherwise, you are just complicating the situation.

Education is a great investment. It can be a real game changer, but you should know how you will fund it before committing to it. It can help you to get a better, higher-paying job, which is what I believe you had in mind when you decided to go back to school.

No matter how scary it is, it generally makes sense to make contact with the lending institution if you are having problems servicing the debt. And do so early. As you have learned, interest charges build up very fast and may become unmanageable if not addressed promptly.

So you now face a serious setback. You may not be able to purchase a home very soon. If there is still a balance on the loan, liquidate it immediately if you can but, unfortunately, it will remain a part of your credit history for a long time – seven years.

Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.

finviser.jm@gmail.com