More Koreans Are Cutting Their Debt

Lee Seong-yeon (30,female teacher) has gone on a diet since June 1. She is 167 cm tall and weighs 53kg. It, however, is not to reduce weight but to decrease household expenses.

Her five-year old teaching job has left her only a 30 million won deposit on her one bedroom flat. Considering the debt worth of 2 million won on her debt account, her assets are less than 30 million won. The first step to saving income is quitting the Starbucks coffee that she takes every morning. By saving coffee money, she can make more than a hundred thousand won a month.

The Debt Diet, a newly coined phrase, has hit websites related to money saving. It is a movement to reduce household debt by decreasing unnecessary expenses.

It was primarily introduced to Korea with the airing of the Oprah Winfrey Show, the popular CBS program.

Usually, financial management means to invest and increase assets, while a debt diet offers a different way of debt-loss to become wealthy. The new movement that started in the U.S. in a bid to shed unwanted debt of a whopping 70 percent of the U.S. households would be a right move for Korea, too.

The Debt Diet program suggests a step-by-step prescription given by experts on a financial plan to achieve financial fitness.

First, get to know how much debt you really have. Since a credit card bill is paid a month after spending, few know the accurate amount of their debts.

Second, write down how much you spend. It will be helpful to track your spending to set a budget for a week, to stay on that budget, and to chart what you have spent on an envelope where you put the money.

Third, reduce your loan rate. Lower loan rates lead you to pay off your debts faster. Visit your local bank in an attempt to get lower rate.

Last but not least, stop spending.

A blogger posted that weight-loss is painful but debt-loss is no less painful

Oh Su-won, a consultant of Moneta, a financial consulting portal, answers the most asked question on the fastest way of purchasing a house. “The first step is not to spend money in your pocket, and a debt diet would be necessary if investment or savings are less than 50 percent of total income,” he advises.

Kim Chang-su, a deputy general manager of the Private Banking (PB) sales team of Hana Bank, explains that the “debt diet” is focused on debts among financial planning service that are targeted on the middle class by financial institutes in the U.S.

He added that while high income households require investment planning to grow their income, middle-and low-income households should understand their financial status and cash flows first.

Jin-Young Hwang buddy@donga.com