Dealing with Debt

Let’s say that when you read this article, you are already buried in debt. Your credit card bill is already very high, and you receive calls left and right from the bank or from collection agencies. You racked up “personal debt” from relatives and former friends, and you have neglected paying them. This may have been due to some financial emergency such as a medical emergency or just irresponsibility on your part. If you are faced with this situation, what should you do?

Many people dealing with these problems run away from their creditors. They simply refuse to answer their phones, and hope that the problem goes away by itself. Other people wait for the “right time” in dealing with these debts. Still, other people only express the intent to pay, without actually shelling out anything. However, it is important to emphasize that ignoring these problems will not make them disappear. Moreover, running away from creditors brings about serious moral and possibly legal problems.

To deal with debt, running away is never the answer. Debt needs to be dealt with as soon as possible, to save both your relationship with those who you’ve wronged and your credit record. Before dealing with the debt, it is best to assess your financial situation. First, ask yourself how much money do you earn in a month? From there, see the list of debts and see how much you can settle per creditor. You have to settle with creditors first, before you think of your own needs and even of your children. I believe that it is of primary importance to rehabilitate your credit standing and your reputation. Moreover, borrowed money that is not returned on the agreed upon time and terms is stolen money, which burdens the conscience. Thus, it is important to assess how much money is earned, and what is the maximum amount that can be used to service debt. This also means cutting down on unnecessary expenses and luxuries. Frankly speaking, the person that is delinquent in paying has no more right to enjoy luxuries, while depriving those he or she owes their hard-earned money. 

After assessing this, the next step is to contact those who you owe. This may be your family members, your friends, colleagues or former colleagues, or the credit card company. It is important to have initiative to settle, to apologize profusely for failing to settle, and to communicate with them the intention to pay. A loan refinancing option may be needed, with the money you owe to be paid in installments. Installments make the debt repayment more manageable. It is important to get both parties to agree, to be able to restore the relationship. The agreed-upon arrangement for repayment would be the loan payment plan. This payment plan needs to be committed to, no matter what. Think of this payment plan as a second and last chance to save a relationship and to restore your good name.

It is important to maintain an open communication line with the person you owe money to. Always update the person about your payment, and ensure that if you issue post-dated checks, those checks are always funded. Dealing with debt involves restoring ruined relationships, and returning money that was entrusted to you. Legal remedies may exist, but it is important to note that whatever may be legal is not necessarily moral. The problem of debt involves restoring to the rightful owner the value of the money that he or she lent to help you out.

Debt may seem to be a big problem, but it is a problem that can be overcome. All that is needed is perseverance, sacrifice and commitment.

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The author teaches subjects under Interdisciplinary Studies, and Finance and Accounting Department at the Ateneo de Manila University. He can be reached via email at lyee@ateneo.edu for queries.