Debt free

Being debt-free is truly liberating. You're no longer burdened by repaying principal and interest.

- DR. GEORGE S. CHUA

Credit card debt is a common trap people fall into. You spend money you don't have on hand, and using your credit card seems like an easy out. In reality, though, this can send you into a financial downward spiral.

Typical credit card limits are often 20 percent to 30 percent of your annual salary, but this isn't set in stone and can vary widely based on many factors. So, for someone earning P50,000 a month (P600,000 annually), a credit card limit of P120,000 is likely reasonable. It wouldn't take much effort to max out that P120,000 limit. At a 3.0 percent monthly interest rate, your monthly interest payment would be P3,600. That might not seem like much, but it translates to a cost of P43,200, or 36.0 percent, a year! Reducing your disposable income by that much means you'll have to make do with less. Can you afford that?