I have been interviewing Pinoys from across the globe on the effects of the US Credit Crisis and I am sharing with you some of my interesting finds. Let’s start with Arnold’s story.
Arnold’s American Dream
Arnold’s wife has been working in America for 15 years now as a nurse. They have 2 kids (16 and 10) who have since lived with his wife. He joined his wife only 5 years ago and worked as an office clerk. They have two cars and sent their kids to private schools. They went shopping on weekends, dined out, took annual vacations outside America, even came home to the Philippines by Christmastime each year, all courtesy of their credit cards.
Theirs was a happy life—living the typical American Dream.
Until recently…the American Dream began to tumble down.
Home Mortgage
Three years ago they sold their home that was under mortgage and took out a housing loan—paid a down payment of $100,000 (from their lifetime savings and proceeds from their former home) for a house worth $500,000. Their monthly installment for their home mortgage has increased because interest rate was increased from 5.8% when they took out a housing loan to 6.5% at the present. Only recently was he able to negotiate for a fixed rate of 6.5% per annum for the housing loan. He will be paying $4,000/month for the next 27 years. In the meantime, the value of their home has decreased by 20%, which was equivalent to the amount of the down payment they had to shell out when they bought their home 3 years ago.
Credit Card Woes
For three months now, he has not been paying the family’s credit card bills—he said he could not swallow paying his minimum monthly dues because they all comprised interests (from 13% pa a few months ago to 26% pa to the present), huge service charges and penalties. The principal amount of credit card exposure increases every month, with the unpaid interests, service charges and penalty converted to principal, if they are not paid on time.
For credit cards alone, they pay between $1,000 to $1,500 every month (minimum payment required for a total of $50,000 credit exposure).
All of Arnold’s credit cards (issued by banks, department stores, supermarkets and other memberships) have been CANCELED because of default in payments, even those with a very small credit limit.
Bank of America has requested him to come to their office on a certain period to settle with them, otherwise, if he does not come, it would mean that BA will write off his $25,000 bills and transfer them to a collection agency. It is more difficult to negotiate with a collection agency, since they are harsh and most often would bring the case to court. Arnold went to BA, who asked him for a payment of $5,000 upfront. Since Arnold had only $100 in cash to keep him and his family through to the next payday, he said there was no way he could pay, and negotiated to stop all interests, penalties and charges, and restructure monthly payments. BA has not agreed on anything, but requested Arnold to pay $500/month, while his case was being reviewed. He brought home a sheaf of papers, documenting all his credit card expenses. As it is, Arnold has not even started paying even part of his spendings way back in 2005 when he and his family went on a holiday to Europe, and all other holidays after that, and the gadgets and appliances that they bought afterward.
For his Chase Bank account of $25,000, he has asked a lawyer to negotiate with them, as it was very difficult for an individual to talk with them—they are represented by their lawyers for credit card negotiations. Arnold has to shell out $200 as lawyer’s fees, more expensive if the lawyer were not his friend.
Nordstrom (department store) charges a lot for the use of the credit card they issued, for interest, surcharges and penalties. They have been reminding him to pay. And so, with the other smaller credit card accounts.
Let’s take a glimpse of the fixed amounts Arnold and his family have to spend on monthly:
Mortgage (home): $4,000/month for 30 years (27 years to go)
Credit cards (minimum payment for a $50,000 exposure): $1,200-$1,500
Car amortization:
Electricity: between $120-$200 (during summer) and between $400-$600 (during winter)
Water-$60
Other Utilities (telephone, cable, internet, etc): $500
Others: not given
Then and Now
Arnold claims that when he came to America 5 years ago, they had a little savings and extra money, life was booming, and he was able to augment the family income. Everything was within their reach, as how it was with all other Americans, again, thanks to credit card availments.
Now, with the same lifestyle, and with the kids transferred to public schools, they have no savings and are deep in credit card debt. This is because over the past 5 years that Arnold has joined his wife in America, the interests in credit cards have almost doubled—while paying only the minimum amounts plus a little of the principal, he was accumulating more debts because of compounded interests and their additional credit card purchases.
It used to be that even if they had very little or no savings at all, they were able to get through with their combined family income, and with the credit that was easily available.
Rebuilding the American Dream
Arnold says at least they have a home, their 2 cars, the kids are in school, and they have their jobs. Now they have to rebuild their dream, change their lifestyle, make both ends meet and at least to keep whatever is left of them: continue with the mortgage of their house, their cars, and pay their credit card bills as per settlement with the different banks and credit card companies. On top of this, they need to have cash for their daily needs—this last one is the most difficult because in the past, they used credit cards to pay for all these expenses.
There will also be no more holidays, no more trips to the Philippines, and less and less of the luxuries that they used to enjoy.
Maybe also, wait for the next bunch of credit card companies and banks who would be opening fresh credit lines. How soon? Arnold has no idea.
Postscript: If Arnold’s story is typical of most Filipinos living in America and other parts of the world—it seems like a gloomy Christmas in the Philippines—there will be less balikbayans coming home, less money that will float, and money will be spent only for basic necessities. What will this make of our economy?
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13 responses so far ↓
myepinoy // Oct 19, 2008 at 7:19 pm
Arnold’s story is not only typical of Filipinos living in America. Here is an excerpt from Dean Beaker’s article (The Bailout Round II: Adult Version?:
“The United States is in a recession and facing the worst financial crisis in almost 80 years because the folks currently in charge were out to lunch.
They allowed an $8 trillion housing bubble ($110,000 for every homeowner) to grow unchecked. …
The main cause of the economy’s weakness is not insolvent banks and lack of credit; it’s the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble’s partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero… families can no longer sustain their levels of consumption… banks won’t lend to these families is that they no longer have home equity to serve as collateral….
And house prices are not going to come back….”
emily // Oct 19, 2008 at 10:01 pm
Hi! I’ve been one of your readers for a quite sometime and i can’t help but comment on this one. Indeed, the economic situation here in America is bad. But I hope most Filipinos know ,better than to be a typical “Arnold”. This situation, sad to say is a result of greed and arrogance. Why will you buy a half million dollar house, splurge on vacations and luxuries when you know very well that you can’t afford it? It is not to fulfill the American dream but bec. of arrogance and greed. I hope they learned their lesson and just be thankful and learn to be happy with what they currently have- family, good health,and job. It is a long, tough road ahead..i lost 35% of my 401k and 20% of my pension plan just last month alone..but I am only in my 30’s..i don’t dwell much over it..I don’t have CC debt although I have mortgage and car payments to make. Life is too short to worry about all these things…and I have my faith..everything will be okay..
emily // Oct 19, 2008 at 10:22 pm
can’t help but to comment on this one. What you mentioned is not a result of having the american dream..Arnold’s situation is the result of greed and arrogance. Why will you buy a half million dollar house, splurge on vacations and other luxuries when you know very well you can’t afford it bec. you don’t have the money to finance all these things. American dream is to work hard then buy the things you want when you saved enough to afford these. Unfortunately, the younger generations think they are entitled to all these luxuries bec. they live in this great country hence, resorting to use of credit cards bec. there are greedy lenders who wanted to make quick money. Indeed, it will be a long, tough road ahead here in US, but if you are living within you means, and saving enough..worrying is not going to help. Family, good health, job and faith in the Lord is all you need to go through this. I lost a lot in my 401k and pension plan just this month alone..but i don’t dwell on it too much. I don’t have CC debt, although I have a mortgage and car payments to make..I am only in my 30’s..life is too short to just worry.
jhay // Oct 19, 2008 at 11:26 pm
Just goes to show that like any other dream, the American dream could quickly end in a second. It also reminds us that we must strengthen and rely on our own economy for survival and meeting our basic needs.
mavic // Oct 20, 2008 at 1:44 am
I agree with Emily. Why have these luxuries when you really can’t afford them?
In France (where I live since 14 years), people just can’t spend money that they don’t have, they don’t believe that you can just put your debts together and get them refinanced.
Am glad that apart from the house that we pay 700€/month, everything we have (vehicles, furnitures, gadgets/computers, etc.) or even our yearly vacation—we paid them in cash. We save then we buy.
Carmina // Oct 20, 2008 at 12:36 pm
Dear Dine,
How are you. I’ve been reading this article and it’s really heartening that some filipinos abroad are not really enjoying after reaching their “american dream” so to say.
I’ve been there thrice in the west coast and observing the lives of our kababayans. My conclusion is that it’s not worth living in a country lIke the US. Much much better here compared to where you want to live if you are financially stable. I would like to mention some of my observations without any offense to some.
People coming to the US were given comfort like loans for cars, house to live in, credit cards for the daily needs and some for luxury like going for a trip. Well, at first you really will enjoy the things that you haven’t had before. Enjoy it , feel it and and said this is the life that i wanted. After sometime of enjoying it comes the problem like what one of the filipinos who live in the US experienced. I realized that living there is not good. Good if you just work there and send money to your family here in the Phils. Living there is not advisable (for me) coz you also spend dollars and it’s like using peso too. but the advantage of dollars coming there is that it’s more than what you earned here in the phils than when you are in the US. You live in the US with luxury but full of obligations to meet afterwards. A big problem and instead of enjoying your life you work more than 8 hrs and still need to work part time to pay all your debts. And afterwards realized your are already exhausted and worn out. I don’t say this to discourage but just to enlighten to those who still dreaming of America.
We are still lucky, i tell you.
Best regards and God bless
Carmina
P.S. this is only my opinion and comments from you would be appreciated.
Belle // Oct 20, 2008 at 2:17 pm
ohmigosh, they got into such a big mess. they over extended themselves. i would suggest that they move to a cheaper house if they can, but it is not so easy to do without a buyer as the banks are not loaning money right now.
sell the cars, and buy used economy ones so they can save on gas.
get rid of the credit cards, except for one for emergency. credit cards suck you into a hole. why do you think they are so easy to get?
pay cash for everything. if you can’t pay cash, don’t buy it.
other utilities are way too expensive. quit calling long distance or avail of the package deal that is available in your area.
cook your own food – it is healthier and way cheaper.
julie // Oct 21, 2008 at 7:10 pm
Over-extending one’s self and going over the limit that one can’t afford is not a good thing. it is all a matter of planning and discipline to limit one’s whims and not spend a dime more than what can one afford.
Sad but may these experiences be lessons learned for the young ones.
emily // Oct 21, 2008 at 11:39 pm
You really have a cool blog. I have been reading yours for few months now and I like the wide range of topics you choose to discuss. As for the crisis here in the US, it is indeed a long, tough road ahead for most of us. I hope most Filipinos here doesn’t have that kind of situation like you talked about.It is irresponsible for people to borrow and spend more than they can afford. The root of all these is greed and arrogance. How can a rational person think that they can afford a half million dollar house, spend vacations in europe and phil (which cost a lot considering the pasalubongs and other incidentals) while earning $100-150000/year.. and the lenders who pad the income of these people so it looks good on paper..Right now, life goes on here, although you can hear my co-workers rambling or mumbling about the rise is grocery, how they will keep a low budget for the holidays,etc. We took a big hit on our 401k and my pension plan..but i am only in my 30’s so i don’t dwell on that too much. As long as I have good health, my family and friends, a job and my faith in God..everything will be okay. Oh i forgot to tell you that i don’t live like the example that you have in your article. Of course I have mortgage to pay, car loan to make..but I don’t have CC debt..buy only things that I can afford right now and take vacations when I have the money in my hand to pay for it. American dream is not having things right now and pay later..it is achieving your goals and fulfilling your dreams thru hard work and perseverance.
mari // Oct 24, 2008 at 1:42 am
best to live within our means. if you can’t afford it, don’t buy it. regardless of the country we live in, if we don’t understand the basics of managing our finances, we will continuously dig ourselves deeper into debt.
dimaks // Oct 29, 2008 at 6:13 pm
the common playground is that, you live in a first world country, expect for the high standard of living.
in the Philippines, you can still ask a vegetable, fruit or maybe a kilo of fish even for free from around the neighborhood.
ilovetosendgiftstothephilippines // Aug 7, 2009 at 2:20 pm
we, here in province can still survive even if we lack of money..we can just ask vegetable or anything that is growing in our neighbor’s backyard. that’s how simple life in province is.. as what i said even though you ain’t got money , the important is you will eat 3 times a day, then you will survive for the day….
Raymund // Aug 8, 2009 at 7:09 pm
i read this after stumbling across your site…grabe! mahirap ang sitwasyon nila… nagising sila sa katotohanan na hindi lahat ng bagay ay dapat makuha tru credit cards…sayang ang panahon na nakapag ipon sana sila bago tumama ang credit crisis…mahal pa naman ang ticket pauwi ng pinas…
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