This is one of the videos we have produced with the Central Bank of Malta in our budgeting series.
Watch the Central Bank of Malta and ĠEMMA Video on ‘Managing your debt’ below or follow this link to watch it on YouTube.
View this ĠEMMA video by clicking on the above and learn more about how to manage your debt: whether you are taking a loan to buy a house, or buying a smart phone on your credit card.
Let me introduce you to the ĠEMMA family. I am Tony. I am Maria’s husband. I work as a manager in a large business in the services industry. My wife Maria is 40 years old and works in my father’s family business. We have two children: Matthias, our son who is 11 years old, and is now in secondary school, and Angele, our daughter who is 17 and is finishing upper-secondary school this scholastic year.
Today I sat Angele down and gave her a lesson on how to manage her debt. Last year she wanted the latest smart phone and decided to purchase it through her credit card, rather than dipping into her savings. I thought that that was good planning on her part – but I explained to her the importance of always paying on time and slightly more than her monthly bill. Why you may ask? Because the interest rates of credit cards are very high and if she had to fall behind the debts on her card would go through the roof.
Download the ĠEMMA Credit Card Calculator by clicking here.
She promised that she would – and Angele is usually reliable, so I encouraged her. This morning I heard her talking over the landline, which was strange in itself because the mobile is usually like an extension of her hand. She told her friend over the phone that her mobile broke after she dropped it. She still had to pay €400 for it and she does not intend paying for it!
Well, I couldn’t let her do this. The consequences of her actions would be very serious. I asked her if she understood the implications and she couldn’t believe there would be consequences for her actions.
I sat her down again and asked “ Do you know that your bank, any bank actually, gives you a credit rating according to how you use your money? Do you know that not paying a €400 outstanding debt on your credit card today ( which does not really sound like too much), means that you are likely to be black-listed? The consequences are very real: should you go to your bank or any other bank for a loan to buy a home or to study abroad, you will find that nobody will lend you any money because you are tagged as a risk! And this not to mention the accelerating increase of your debt due to a compound high interest rate which is the interest accumulated on your debt. which you would still have to pay following what could be costly legal procedures!”.
Angele was no longer smiling, she was shocked, “Angele was still staring when I told her, “There are four lessons you should take with you from this. First, always pay your debts. Not doing this will have grave future consequences. Second, make sure once you take a credit debt that you pay it, and pay it on time with some little extra: otherwise that debt is going to compound from one month to the next. Third, did you really have to buy such an expensive mobile? I’m sure you knew it was fragile.. You could have bought a smart phone that would have had the same functions at a fraction of what you paid for it. And finally: take care of your things. In conclusion, you have a a €400 debt that you still have to pay with nothing to show for it. ☹☹☹
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