Free Debt Clinic Puts Household Finances Into Black

The family of a 48-year-old minister of a new church has always had a deficit in household spending.

His monthly income is two million won (1,509 U.S. dollars) but he spends 1.54 million won (1,162 dollars) in living expenses and educational costs for his two sons – one in high school and the other in elementary school. Another 1.51 million won (1,139 dollars) goes to insurance premiums and interest payments on loans.

He managed to scrape by through the use of several credit cards, but with his debts accumulating, he visited a “debt clinic” commissioned by the Health, Welfare, Family Ministry and run by Podo Financial Planning.

After consultation, he found his problem was the fees for cash advances on his credit cards that exceed 20 percent a year, five insurance policies, and excessive spending. He admitted to not knowing exactly how much he earned and spent.

The clinic advised him to pay off high-interest rate debts first by taking out a mortgage on his house at annual interest of six percent. It recommended him to cut his annual insurance premiums from 530,000 won (400 dollars) to 260,000 won (196 dollars) and to keep a checkbook.

The minister cut his monthly spending from 3.05 million won (2,301 dollars) to 1.78 million won (1,343 dollars). His household account deficit turned into a surplus of 220,000 won (166 dollars).

The ministry commissioned a study to Dr. Park Chang-gyun, a business administration professor at ChungAng University in Seoul, to analyze the

situations of 300 of the debt clinic’s clients before and after consultations.

He found that their deficits plummeted 82.4 percent from 740,000 won (558 dollars) per month to 130,000 won (98 dollars).

The secret was to change from high-interest loans to those with lower interest, and to cut excessive discretionary spending.

Household debts decreased from 54.1 million won (40,830 dollars) to 40.7 million won (30,739 dollars) while savings increased 34,000 won (25.6 dollars) per month.

One 51-year-old client said he found saving money fun after receiving a consultation. His monthly family income was 2.63 million won (1,984 dollars) but spending was 5.16 million won (3,894 dollars) due to educational costs, living expenses and high interest payments from unplanned and frequent loans.

After consulting with the clinic, he took out a mortgage loan, paid off all high-interest loans, cut educational costs and spending on food, and saved a bit of money every month.

Professor Park said, “Since the households that follow the clinic’s advice have the will to stand on their own feet, it’ll be much more efficient if microcredit is offered to them.”

The number of applicants to the free debt clinic has exceeded 2,800 as of April 9. The clinic is the first step of the campaign “Finding Hope Together – Getting Rid of Household Debt” jointly initiated by The Dong-A Ilbo, the Health, Welfare and Family Affairs Ministry and Hana Financial Group to help low-income families stand on their feet again.

Podo Financial Planning selected 38 out of 250 people who finished the third round of consultation, and referred them to the Hana Hope Foundation for microcredit. The foundation will choose candidates this month after paper and onsite screenings

Application: Podo Financial Planning (02-2088-8802, www.podofp.com)

crystal@donga.com