Monday, March 26, 2007

Cycle of Debt

With the ever increasing prices due to the higher cost of living, most Filipinos find that their take home pay is never enough to cover most of their expense and usually resort to getting a loan. But what if your loan turns to an endless cycles of lending and borrowing.
Filipinos who survive on cash advance, salary loans, educational loans, SSS or GSIS loans, car loans, housing loans plus other types of loans are plagued with multiple and endless debts that they do not even realize these loans are keeping them prisoners in this vicious cycle. Remember that living on loans is living beyond one's means and is gambling with your family's future. When borrowing money is the only solution to inadequate salary, We are throwing away our freedom to move, to decide, to enjoy our earnings because we already spend our money even before it reaches your hands. And if this loan is still not enough, we end up getting another loan just to pay off our existing loan. A scary way to live but this is really happening around us.

But most of the time it is ignorance of how to take care of one's finances that is the main reason why one is in debt. Its the lifestyle we chose to live that affects where we spend our money, if we live beyond our means we incur debt. A person who earns six figures a month is in the same boat as a person who earns minimum wage if one does not know how to take care of their finances. I observe that the higher ones salary, the more in debt the person usually is. I know a bank manager who earns quite a lot but has piles of debts. She has already exhausted her personal and equity loan from the company she works. Maxed out on her credit cards, has an existing car loan and her home is mortgaged. She even has resorted to borrowing from her staff, and now the credit card company is calling her daily due to non payment of bills and has began avoiding them. Interest rates from loans do add up, and if it piles up, it will be way over her head and one day she might wake up to the reality that her car and home is being reposes by the bank due to the massive loan she was unable to repay.

Good management of ones finances will really help avoid debt. And if you are already in debt, all is not lost. You can contact the finance agency or bank that you have a loan to tell that you can no longer pay them and work some kind of a deal. If you have debts due to a car loan, its best just to let them reposes the car or sell it to someone who would continue to pay the loan. Cars depreciate in value as soon as you roll them off the showroom, so there is no sense in hanging on to them. Treat it like you have rented the car so it would not hurt as much. For credit card debts, balance transfer it to a company that offers a lower interest with fixed term to pay it off. Just remember that an ounce of prevention is worth a pound of cure so its really better to avoid getting in debt in the first place.

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