Personal Debt

Many Filipinos are literally saddled with debt. As such, debt has been viewed negatively. Being in debt connotes a burden, and being buried in debt has a similar connotation as being buried six feet under. However, with all the negative beliefs about debt, debt can actually be your best friend and lifesaver.

Debt is made possible through credit. It is important to understand that the word credit has the same Latin roots such as creed and credibility. This root word is credere, which means to entrust and to believe. Credere comes from ker-dhe, which literally means to put one’s heart into. Thus, good debt is a product of kind intentions, since the lender actually entrusts his or her money to you to save you from some predicament.

For instance, your remittance is delayed, and someone in your family suddenly suffers from a medical emergency. To pay for this emergency, you can draw from your liquidity pool, but if it is not enough to cover for this, the next best thing would be to ask for financial help from a relative or a very close friend. Personal credit then acts as a bridge, allowing you to meet the expenses associated with the emergency, prior to you receiving your cash inflow. Let me call this kind of debt personal debt.

Thus, a credit line can actually serve as a lifeline, in cases where liquidity cannot cover the essentials. However, being an extension of someone’s kindness, personal debt bears a responsibility. Personal debt has to be prioritized over personal expenses and necessities. When borrowing from a friend or a relative, stick to what’s realistic. Try to map out your own cash flows and see when you can pay soonest. Honesty is also important. Tell your friend before you borrow if you cannot pay in one full payment. It is best to have a payment plan ready, and to faithfully stick to it, no matter what.

If nurtured properly, personal credit and debt is a source of good debt, and acting as a lifeline, good debt can help prevent you from descending into the endless cycle of bad debt. Personal debt, being a concrete manifestation of an act of kindness, should be reciprocated with the same care, consistent with the trust inherent in the lending act.

When personal debt is not an available option, many people rush to loan sharks and moneylenders. It is important to be aware of the different kinds of interests imposed. The succeeding pieces will discuss the different kinds of interest, in order to help you fully understand the mechanics behind debt.