Wednesday, November 23, 2022

Lessons on Debt

In an earlier episode of The Fandesals Podcast (currently on Google, Apple and Spotify and also on YouTube), we discussed the topic of our Tough Ten Adulting Realizations. I decided to recycle an old post from an earlier version of my blog related to the topic of Learning the Value of Money. The episode on Spotify  and YouTube is embedded at the end of this post. Enjoy!

Debt. Who doesn’t have it these days? I know I do.

When I was younger and starting out I had responsibilities to take care of that I couldn’t pay off with just my salary alone per month tiding me over. I learned early on how to avail of loans and had started using credit cards to be able to pay off the necessary expenses. Thankfully, however, I also learned the value of being able to responsibly decide when to take on a loan and how to pay it back. Some people, however, are not as lucky.

photo from Rilsonav on

Here are some lessons about taking on debt that I have learned through the years from personal experience and the debt stories of other people. I hope that it helps you as much as it has helped me.

1. Think about why you are taking on a loan in the first place.

Do you really need the money? What are you going to use it for? Is it something that can wait until you have saved up for it? These are questions you should ask yourself before taking on a loan or charging anything to your credit card. If you need the money at that very moment and it is for an important cause then by all means do so. If not, try saving up for whatever it is you need first or taking a pass on a loan if this is only something you want on a whim and not something you need.

2. Choose your loans wisely.

Let’s say you need a loan and you know of a financial institution that is willing to give you one. Don’t just grab it. Study the fine print. Check out interest rates. Make sure that you are not getting in over your head with whatever loan you are taking on before you decide to take the plunge.

3. Have a budget and learn to follow it.

Before I take on a loan I prepare my monthly budget to see if the repayment can still be covered by what I earn monthly. If I can fit it into my budget, then I will go for it. If not, I will try to look for other means to get what it is I need other than taking on that loan. If I do decide to go through with my loan, I commit to my budget to make sure that my loans are paid on time to avoid having it grow because of the interest rates on it.

4. Do not take on more loans than you can regularly pay for.

As I mentioned earlier, I will only take on loans that I can fit into my budget. I know of some people who do not do this and end up not being able to pay back their loans. They end up taking on an additional loan just so they can use the money to pay back the older one, which just starts a neverending cycle of paying for a loan that you knew from the start that you couldn’t pay back anyway. Trust me, it will never end and the stress it will give you is not worth it.

5. As much as possible, do not borrow from people.

I know that it is easier to borrow from people instead of financial institutions but I would advise against it. If you borrow from friends, any issues you might have when it comes to paying it back will only affect your friendship. It could get much worse if you borrow from family. You don’t want that. If you borrow from loan sharks, the interest rates are so high you would have been better off borrowing from a bank in the first place. Just don’t do this.

6. Do not allow people to use your name to borrow money.

This is the worst thing you can do to yourself. I know of people who take on loans for other people, usually friends or family. Because you have a good credit line and others don’t it doesn’t mean you should let them use your name for it. When they are unable to pay, you will be left with the responsibility of paying back something that wasn’t yours. It can ruin relationships. It can ruin your credit record. It is a bad idea. The same goes for being a guarantor for someone else’s loan. If you don’t know the person that well when it comes to managing his/her personal finances, don’t do it. Please don’t.

7. Do not be overconfident about not paying back your loan.

I know of people who say that it’s OK not to pay back their loans and/or credit card debt because no one goes to jail for that. I beg to disagree. I know that it can happen. I also know that a bad credit record can haunt you for life. What happens when the time comes that you really need the money? What then?

The lessons I shared are just some of the ones I’ve learned through the years. While I know that it is better to not have a loan at all, I know that in this day and age and with the responsibilities we all have to shoulder as adults, this may not always be possible. The best thing we can do is to make sure that we do this as responsibly and maturely as possible.


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