Debt: Good or Bad?

Manila, Philippines - Debt for many of us see it in a negative way. Is it really good or bad? There are so many aspects that we should look into our life, where and how to use it,  in order to see the effect of debt to us. 

I am a good example of a person who didn't know exactly the meaning and use of debt. I always hear from my parents that it is better to start a new business using our own money no matter how small it is. "Don't ever get a credit card because it will just make you spend more than you need," mom said.

Well, I didn't listen. First, I got my own credit card and not just one but three. At first, it was easy to pay and as time goes by I used my cards excessively without thinking of the effect on my budget. I am always addicted to shopping and buying things that I don't really need. I sometimes use it for groceries whenever we run out of cash. But what is scary is when I wasn't able to pay them anymore.  "I admit, I was a big spender!" 

I also applied for a personal loan from a lending company to use it for business. Unfortunately, the business didn't succeed which was so devastating because I resigned from work to focus on this small business. When I went back to work again I applied for SSS and Pag-ibig loan, and never thought where I'm going to use it. All I was thinking is to use my government loan, afraid that someone may use my loan without me knowing it. I wasted money a lot! 

I had so many plans that failed because of lack of financial literacy. It even came to a point that I had to battle depression because of the pile of debts I have to settle. I was jobless and have children to feed. During that time, my husband's income wasn't enough to pay for my debts. Just imagine having 5 kids to feed, 4 goes to private schools, milk for our baby, bills and more expenses. I failed because I never listened. 

When I heard that Sun Life give free talks about financial literacy, as a blogger, I took the opportunity to join and learn. This is the second time that I will be attending their free seminar with Aya Laraya, a well-known financial adviser and expert. This time he discussed about the good and bad effects of debt. 

What is debt?

Debt is simply the use of other people's money.

Good Debt

Debt if misused will definitely get you into trouble. Debt is not a bad idea if you know how to use it the right way. We all have ideas for investment, and planning is the best formula. I tried putting up my own business and didn't work so well. So, planning is really something that we should be serious about. Don't be afraid to try, because failure will make you stronger and learn from it. If you don't take actions now, when are you going to start? Focus, research and study. Don't limit yourself to options. Applying for a business loan is alright as long as you put your mind into it and it's something that you really like and want to do. 

"If you don't want to loan, sell quity and look for partners. Like in stock market, they sell equity. Selling equity means you're looking for partners," Aya Laraya said. 

One of the five wealthiest families in the Philippines, Ayala, Gokongwei, Sy, Andrew Tan & Lucio Tan, did not lose control. They were able to grow more than their competitors, because they used all their tools (3 Ways to Grow Business).

3 Ways to grow business

1. Internally generate your growth

2. Borrow - that is the leverage

3. You list, you sell to the public ownership

Bad Debt

1. Consumer Goods - These are the things we buy and don't really need. Good example is buying expensive gadget because it's the new trend. Do you really need it? Think first before buying. 

2. Emergencies - We can't avoid emergencies and emergency savings is very important. My husband had an accident 3 years ago and needed an immediate operation. It was one of the biggest problems that we had, because I resigned from work, no health insurance, & no emergency savings. We had nothing. Applying for another loan or using credit card is really a bad option then. We were still paying for my other loans. 

Other than our own emergencies, we also have relatives, neighbors, & friends. It is in our culture to help whoever needs us. It is not bad to help but lending them money is not good either. Why? If they get used to it, borrowing money from you, do you think they will pay you back in time? Some will do & some may not pay. What's worse is the negative feedback you get from them. Learn to say no. That way, they will learn and know that saving for emergencies is a must.

3. Bad Business Loans - Never get into a business and apply for a loan if your are not sure about it. Housing loan for example is good if you will use it as your home. If you just loan to get a condo to use for business, it may not be a good idea. Let's say it costs P1M and you can loan up to 70%. You pay interest, do you think the rental would be enough to pay for the amortization?

Car loan to use for car rental business. You want to have a car for pleasure and use it for car rental to pay for the amortization. Think about the gasoline, insurance, your time & tax for earnings. Is it enough?

So, before applying for a loan for business compute also if you are really earning. It is not enough to just be able to pay for your debt. Weigh everything. You must be earning more than the amount that you need to pay for your debts. 

Bad credit can really affect your life. You may get away with your other loans, but what about the other debts? Applying for a visa in other countries can be very difficult for you. Other countries really make an effort to check backgrounds. They don't want people running away from their debts. 

If you want to use your SSS and Pag-ibig loan privilege, you can use it the right way. A long time ago, you would need to have a million peso or hundreds of thousands to invest. Now, with Sun Life there are so many ways to invest and you have an assurance that your money is safe and will grow more than what you expect from your savings account or time deposit. With P5,000 you can have your own Sun Life Prosperity Card (mutual fund) or even P300 for another type of investment with Sun Life. Another suggestion is stock market. There are a lot of options, just look around and be open to try what it is you think would be the right investment for you. Think about your future. Choose your goals.