Make your dreams come true without falling into bankruptcy
Leer en Español: Finanzas Personales: haga lo mejor de su crédito
Our economy is based on transactions and these are carried out either by cash or credit. Every transaction pays for someone else’s work, which ends up feeding families on the other end of the economy. Therefore, our economies are inter-connected.
Today’s Colombian economy seems to be becoming close to a financial position it doesn’t want to be in; the long-term debt cycle is ending, which means that the Colombian productivity has reached its minimum levels as oil prices have fallen and the Colombian Central Bank’s interest rates keep dropping without substantial changes in consumption.
The recent national tax reform has cut private spending while credit defaults remain on the rise. A big portion of the situation is pinned on the Colombians’ lack of financial education regarding the proper procedure to manage credit.
Basic knowledge for obtaining
Make sure you understand the difference between investment and consumption. Buying a car is not an investment unless it will generate monetary returns. Any purchase whose balance generates a cost is not an investment, it’s consumption.
Taking credits for consumption is risky as it implies buying an object for a higher price for the sake of having it immediately. Taking on any sort of credit means your purchasing power will decrease for the following months until payments are completed. Beware of impulse-driven blind consumption as it could deeply affect your future.
On the other hand, the rule of thumb on credit for investment dictates that credit is a good business if the capital obtained can be invested in an asset that will return at least the principal and the sum of the accumulated interests by the time the realization is done.
After you thought about it, head to the bank and try to bargain for the minimum interest rate. Interest rates accumulate either monthly or annually over the amount of money given. Due to the accumulative nature of credit, failing to pay a month’s bill will increase the interests for the next month.
Another important decision is to determine the optimal number of months you’ll take in order to pay off your debt. Moving for shorter payment times will reduce the total amount you’ll end up paying; by increasing the number of months, you will be paying more money for the amount given.
Finally, make sure you look over every bank statement as everybody can make a mistake. You could be losing money. If it was you who made a financial mistake and find yourself in a tight situation then write a letter to your bank asking for extended payment times or a new interest rate. Banks will listen if you’re polite.
Credit works well for emergencies, therefore, having a good credit score is a positive way to be prepared for any inconvenience. Keep your score high by paying off your credit card on time twice a month, use your card as little as you can, and ask for higher credit limits constantly.
Managing credit implies self-control and discipline. Always think before you buy and never miss a payment.
Latin American Post | David Eduardo Rodríguez Acevedo
Copy edited by Susana Cicchetto