ArticleFinance

Debt and Get Out of Debt Snares

DDHK.ORG - The problem of debt is a classic problem, which may be experienced by many people. With this opportunity, we will discuss it, so that maybe it can be used as material for consideration and lessons so that you don't need to be in debt.

The story of Siti and Maya

Before we move on to the material, please listen to the stories of two migrant workers Indonesia di Hong Kong named Siti (not her real name) and Maya (also not her real name) the following:

Siti works in Hong Kong as a migrant worker. This is the first time he has worked in Hong Kong.

Maya is also a migrant worker, having been in Hong Kong for longer. They are good friends. They spend time together, meeting up almost every day.

Maya is very kind to Siti. Maya always accompanied him on walks around Hong Kong. Sometimes, Maya also likes to treat Siti to a meal.

One day, Maya asked Siti for help. His family in the village was hit by a flood. They need money fast. Maya asked Siti to be willing to be a witness in the debt agreement.

“You just need an autograph. I will pay the loan myself, ”said Maya to Siti.

Siti does not understand her responsibility as a guarantor of debt. But as long as he doesn't have to pay anything, it doesn't matter, right? Maya has helped him a lot. Siti wants to repay Maya's kindness. He is also happy to be able to help Maya.

The months passed. Sometimes no one can predict the future. Something unexpected happened. The costs started to pile up. Maya was unable to pay her debt.

Siti is also very worried, because she has to be responsible for Maya's debt. What if he can't pay the debt? What if the employer finds out about this debt? What if he gets fired and has to return to his hometown? If that happens, who will pay this debt?

The creditor company begins to collect. But Siti doesn't have enough money to pay Maya's debt. But he has become a guarantor or witness. He is obliged to pay the debt if the borrower is unable to pay it off. What if the loan company notifies the employer? What if he loses his job?

Why is all this happening? Can Siti make other choices?

It may be difficult or uncomfortable. But we don't have to always say "yes" to friends. Siti realized that she could not take the risk of being a guarantor for Maya's debt. But, he still wanted to help her. When Siti arrived in Hong Kong, she heard about an institution that teaches financial training for migrant workers. This institution can definitely help both of them. In this way, Siti and Maya remain good friends, grow together, and are still able to support their families in their respective hometowns.

Beware of the term witness = guarantor in borrowing money in Hong Kong

There are terms witness and guarantor. A term that my friends in Hong Kong often know is “witness” of debt. In fact, their status is not a witness. Because, if a witness, only people who witness the occurrence of debts.

But most of those who have signed as “witnesses” in money lending transactions in Hong Kong are guarantor. This means that when a friend who is in debt is unable to pay his debt installments, the guarantor will be sought by the debtor company.

Mostly, my friends in Hong Kong don't understand. For example, the story of Maya and Siti earlier. In Hong Kong, those who want to borrow money must bring witnesses. Actually, his status is not a witness, but a guarantor.

The problem is, my friends never want to read the contents of the accounts payable contract that he also signed. What are their obligations as guarantor. Whereas in the contract it is written that if the person who borrows money does not pay the loan, the obligation will be borne by the guarantor.

This happens a lot. Many admitted that they did not use the money owed by their friends.

The problem is, why are there many stories like Maya who are unable to pay their debts? There are many cases. There are "Maya" who run or run away. So, like it or not, people like Siti must be forced to bear the burden. Or, Maya actually intended to pay him, but suddenly something happened, she was fired from her job.

Or, he has to go home because of the condition of his family in Indonesia. Because he came home, he no longer had money. Or, from the start, Siti was tricked. His documents were used, as if he were the guarantor for borrowing money.

Overview of lending and borrowing in Hong Kong

  1. Money lenders must have a license. Usually, his license certificate is posted on the wall of his office. As of December 31, 2019, there were 2.300 licensed money lending companies in Hong Kong. If you borrow money from a friend whose return uses interest, and you make a business, that is not allowed. It can be filed against the police, as a violation of the law.

Many friends also pawn their passports to other people as collateral for loan money. That too is wrong.

  1. Money lenders in Hong Kong are bound by Money Lenders Ordinance rules that must be obeyed.
  2. Money lenders are not the same as banks. Many friends have the wrong perception, seeing money lending companies as banks. Because, their business service focus is only to lend money. There are many activities in the bank.
  3. Money lending business can only be carried out by companies that have a license.
  4. Loans must be based on a loan agreement signed by the borrower within 7 days of the agreement. If friends borrow money, there must be an agreement, black and white. You have to get a copy.
  5. On the loan agreement letter, the loan amount must be written, the effective interest rate per year, and the terms of the payment for how long. There must be a detailed description.
  6. The interest rates in Hong Kong are very high, namely:
  • Up to 48 percent per year. Maybe because the risk is high. That number is a normal number. So, if you borrow HK $ 10,000, you have to return it for HK $ 14,800.
  • Between 48-60 percent per year. This includes blackmail. If we can't, we can appeal to court.
  • Above 60 percent per year. This is a violation. We can mix up.

Practices that are not allowed in borrowing money transactions:

  1. Flowers that flower.
  2. Prohibition of repaying loans.
  3. There are other fees, such as administration fees.
  4. He wears an increasing interest.
  5. Personal documents such as passports, HKID, employment contracts are used as collateral. Usually, official money lender institutions will not ask for official documents of the borrower to be used as collateral. Palingan, ask for a photocopy. Usually, illegal lenders hold their passports and employment contracts.

Passports, abroad is our life. Never give someone else a passport to hold.

Example of a debt agreement

This is an example of a normal money lending transaction in Hong Kong.

If you are in debt, don't throw away the summary evidence of a debt contract like this. Also, proof of payment is stored properly. Likewise, evidence of communication with lenders on SMS or on WhatsApp should not be deleted. If there is a problem, it's easy to find out.

Mostly, I find cases, the amount of debt repayments is greater than the salary received each month. For example, the salary is HK $ 4,630 but the installments are HK $ 7,000 per month. Don't end up experiencing this. So, be careful.

If the person is already in debt, what should be done?

  1. Promised not to be in debt again. Most, for example, he has a loan with an installment of HK $ 2,500. The salary is HK $ 4,600. So, he has HK $ 2,100 left over. Once upon a time, his son suddenly needed money. Finally, the money that was supposed to pay off the debt was sent to the village. Because when he was due, he could not pay the debt repayments, he borrowed more money from another company, with a smaller amount. He did not realize the consequence, that next month he would have to pay the first and second installments of the debt. This is the beginning of a disaster in a debt-ridden case.
  2. Prioritize paying off the loan before other expenses. If you have debts, you will be detained for other purposes first. If necessary, discuss it with families in Indonesia. They told them that we have debt in Hong Kong and must focus on paying it off first. As a consequence, sending the money to the village is reduced. If it is not controlled, it could lead to layoffs in Hong Kong and could lead to a worse situation.
  3. List debts and determine priority payments. There are those who are so much in debt, they don't know how much they are owed anywhere.
  4. Reduce expenses realistically. Don't pamper yourself anymore. top priority to pay off debts. In fact, if there are items that can be sold, sell them first to pay off debts.
  5. Don't hesitate to consult an expert. Enrich has a financial consultant who can help friends make financial planning for free.
  6. If necessary, talk to the borrower about how to restructure the debt. So, the amount of monthly installments can be reduced. As a consequence, the term or term of payment is extended. It's better than not being able to pay off a debt at all because you can't pay it.

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By Medya Putri, Trainer and Financial Consultant of Enrich, presented at the talkshow online series "Wisely Financial Management", Saturday, March 27, 2021.

>>> Follow the online talkshow series entitled "Wise Managing Finances" with other themes, every Saturday night, April 3, 2021, LIVE on Facebook page Dompet Dhuafa Hong Kong.

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