By Randell Tiongson

How would you take the thought that you are stealing money from your future paychecks? Do you think that’s okay because you’ll have a bigger paycheck by then or the thought of it bothers you a lot?

That is what bad debt will do to you if you’re not careful with how you spend.

I will classify bad debt as money borrowed and then spent on non-emergency situations.

A funny definition of a bad debt is “using money you don’t have, to buy things you don’t need, to impress people you don’t like.”

But how will you avoid reckless spending that leads to debt? Here are some ways:

1) Change the way you look at money.

Most people go on a spending ban and binge spend after a month or so is because they view budgeting not as a lifetime goal but a short-term goal. There are instances when you’d do it for a trip or for an immediate purchase but not as a lifetime habit.

This is just the same as being in a debt cycle. You weren’t born wanting to have debt for unnecessary purchases. This is fostered through time and repeated actions.

2) Make the most of your age.

Are you below 30? If yes, then this is the best time to start investing and saving. You have more time to build your savings for retirement. If you are over 30, don’t fret. There is still time for you to build your funds.

It will be challenging at first because it is not mainstream to live below our means. Some peers measure achievement by new gadgets or a new car.

Remember, however, that true friends will not care whether you have the latest model of anything. So avoid giving in to peer pressure.

This is also the best time to begin investing.

Do you know that investing only P2,000 a month with an average yield of only 8 percent a year will give you over a million in 20 years? Imagine if you invest more and in diversified investments? You may want to look at pooled equity funds like mutual funds or UITF; or you can start buying select stocks yourself. Remember, study the investment first and never invest in something you don’t comprehend.

3) Protect your loved ones.

This doesn’t mean that you will stop causing debt, but this can go on until you die. I don’t think you’d want your loved ones to pay for your wrong financial decisions.

Look at the life insurance coverage that you have. Can this be used as a collateral commitment to your loans so that no one will be bugged by this in the event that you die? Look at every debt you have and assess if this will be stretched to 20 to 30 years. Discuss this with your family members and your co-makers so that they will get an idea of this and provide their insights on how you can bring this down.

4) Don’t borrow money that will not help you make more money.

If you are borrowing money to put up a business, then that’s good debt. If you are borrowing just to keep up with your neighbors or siblings, then that’s a bad one.

Ask yourself these questions before buying anything with borrowed money:

  • Do I really need this?
  • Can I find a more affordable option?
  • Will this make me more money?

Compare prices before making major purchases. Compare prices of smartphones with the same specifications so you’ll avoid overspending. Compare flights so you can get the cheapest rate to your destination. Never buy anything if you have not compared options.

I never buy anything on impulse, I try to check out all options before making any purchase.

5) Find other streams of income.

Let’s face it: one definite way to avoid debt is to have multiple sources of income since this can empower you to buy items in cash. Find ways to get other sources of income through online portals like Raket.ph, Kalibrr, and other job boards. Multiple streams of income is a good idea!

You can achieve anything you concentrate and focus on and avoiding bad debt is no exception. Keep in mind that having bad debt robs you of your future income so avoid it as much as you can.

Debt can be good, bad or ugly; wisdom dictates that you know which is which.

Randell Tiongson, RFP is an advocate of Life & Personal Finance. With his 25 years of experience in the Financial Service Industry – Banking, Mutual Funds, Insurance and Financial Planning, and Management Consultancy, he has become one of today’s most respected personal finance coaches in the country.

Randell regularly appears on TV as resource person for various shows like TV Patrol, Bandila, 700 Club Asia, Mornings at ANC, Shoptalk, Business Nightly, Failon Ngayon, On the Money, Umagang Kay Ganda, Unang Hirit, Aksyon TV, and News to Go among the few.

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