To utang is human, to bayad is divine.
We incur debt for different reasons and in many different ways. Some through overuse of credit cards or taking out too many loans. Others have had emergencies that led them to borrow money from family or friends or—mostly out of desperation—resorting to loan sharks.
Even the rich borrow money for their businesses. The difference lies in one’s intention to make use of — and capacity to pay for — that debt.
What is utang? A definition
First, let’s agree that there’s good and bad debt.
Good debt comes in the form of an investment. The borrower knows that this debt will earn money, and so there’s confidence between borrower and lender that the debt will be settled soon enough.
This type of debt usually comes with collateral. And you, as the borrower, are well aware of the possible risks and where the borrowed money is going. This is basically one form of calculated risk. There is a plan and action to grow the borrowed money. Or at the very least, that this will go to a good cause.
A good debt could be used for education, real estate, or investing in a business—whether from the ground up or for expansion.
Bad debt, on the other hand, is the kind of debt trap most borrowers fail at and fall into.
This one is just an outright liability. There’s nothing much to be gained from it, except for piling interests, or maybe getting that much coveted item you were better off paying for a 0% interest on credit card installment instead.
Examples of this are unnecessary car loans, mainly because of its depreciating value. Can your income hold out with the monthly payments for the next five years? Maybe you’re better off using Grab instead?
These are also debts that are for personal use, such as travel, petsa de peligro, or purchase of material things.
There’s no avoiding utang. So how does one navigate the world of borrowing from families and friends? Let’s consider these points.
5 cardinal rules of borrowing
1. Set a purpose for that borrowed amount
Good or bad, your debt must serve a purpose.
If you’re able to set the right purpose for borrowing that money, then you’re not really losing. And by setting a purpose, you’re more inclined to pay for it.
By setting a purpose, you’re ensuring you’re not just some mindless utangero. You know where this debt is going, and you know where to get the money to pay it back, and earn the trust of your lender. You can then use the good faith you’ve built up with your lenders to borrow money again, when you need it.
It’s not easy breaking the cycle of debt, but at least be a responsible borrower. In time, this will prepare you to apply for a credit card or a bank loan (when necessary), given your responsible borrowing practices.
2. Don’t flaunt luxuries when you haven’t paid your debt
If you haven’t even paid for your debt/s whether by installment or in full, don’t be a show-off.
Put yourself in the shoes of the lender. How would you feel if you see someone that owes you money posting #wanderlust or #hypebeast photos on Instagram?
To the borrower, this rule applies to debts incurred with someone you know. Respect your lender enough to prioritize paying them, before you start spending money on frivolous items, or going on vacation. Think of it this way: You’re tied to this debt until you’ve settled it completely.
And if you can’t help but indulge yourself? At least try to be low-key and stop posting the good life on social media where your lender can see you. It’s just common sense, to be honest.
3. Communicate effectively
Can’t pay yet? Let your lender know. Make the effort of explaining the reasons why you’re still not able to settle.
It can be as easy as messaging them and letting them know your current financial status, and when you plan to pay them. Stick to your word and do all you can to finally settle that loan.
4. Set a timeline for debt/s repayment
Do you feel like the world is against you, and you can’t get out of the debt cycle? Well, you’re not alone. A lot of people have come out of this with barely a scratch on their credit history. Here are the followings steps you can start doing:
- Find the best repayment strategy. There’s the snowball method, which lets you prioritize debt repayment, from one with the smallest interest first, down to the highest interest. Or, if high interests have been the cause of your inability to get out of debt, then pay off the one with the high interest first.
- Consolidate debts. Maybe you’re still qualified for a personal loan? Use that money to consolidate your debts, and finally be debt-free in just a few months.
- Set a budget and stick to it. These are the utilities every month, rent, and food. After that should be the budget for debt repayment. All other unnecessary items can wait. Delayed gratification works wonders. Try it.
- Earn extra income. For most people, setting a budget just won’t cut it. And it’s understandable, considering the current inflation rate. You’re not limited to your day job. You can always find ways to earn extra money. Whether it’s off your current skills, or finding an online job.
5. And lastly, commit to paying for it.
You borrowed it, you pay for it. It’s that simple. But sometimes people still turn a blind eye on this important, albeit unspoken rule. There are a lot of distractions that can keep you off of paying debts. You can learn from other people who have settled their debts successfully.
Delinquent debt can ruin your credit history with financial institutions. Unpaid debt between friends and family have seen a lot of feuds, lawsuits, and severed ties.
It’s your integrity that’s at stake. You can easily run away from money obligations, but who are you kidding? This kind of negative running-away-from-debts cycle will eventually come right back to you, one way or another.
Think you got more to add? Post this for the utangeros you know!
Other sources: Investopedia