Debt Beliefs to Leave Behind

Nowadays, borrowing money is made much easier and accessible to people. There are bank representatives in malls offering credit card applications, callers saying you’re pre-approved for a loan, and a lot of cash loan mobile apps readily available online.

This reminded me how borrowing money and being in debt have become normal for many Filipinos. While no one wants to be buried in debt, there are people who rely on borrowing and struggle to get out of it because of some beliefs that they have.

And in this article, we’ll discuss these common beliefs and why they must be left behind. Keep in mind that we’ll focus on “bad” debts and won’t include the good ones. If you want to know more about what good debts are, you can read this article instead.

So, let’s start!

1. Borrowing money will solve your problems.

Many believe that borrowing money is the answer to their financial needs and that it’s even necessary to achieve their wants. But it’s definitely not the case.

The truth is it’s just a short-term solution that comes with the price of a more difficult future. While borrowing money can help you with your day-to-day expenses or lets you afford your dream house or car today, it can also lead to long-term financial stress.

Borrowing money can create a cycle of dependency on debt, where you’ll continually rely on loans or credit to maintain your lifestyle or cover expenses. And of course, there’s also the issue of interest rates and other fees. This can lead to you waking up one day buried in debt wherein a huge portion of your income is needed just to pay it off.

Imagine working for 40 hours a week but only getting paid for 30 hours. The payment for the 10 hours you worked hard for will just go straight to paying your debts. And that’s just 25% of your income. What if a higher percentage is needed? That’s what it’s like when you have debts.

I understand that some of you are probably wondering, “Isn’t it okay to borrow money if I can afford it?” This leads us to our second common belief which is…

2. It’s okay to borrow money if you can pay it monthly.

Take note that each peso used to pay interest doesn’t provide any benefit to you.

To illustrate this, let’s use the Pag-Ibig housing loan calculator¹ to get an idea on how much you’ll need to pay monthly and how big the possible interest will be.

For example, you want to borrow PHP 2 million. If the interest rate is at 6.5% and you want to pay it off in 10 years, your monthly amortization would be approx. PHP 23,000. Multiplying this to 12 months then to 10 years will result in PHP 2,760,000. You borrowed PHP 2 million but will end up paying PHP 760,000 more.

Meanwhile, if you want to pay it off in 20 years, your monthly amortization would be approx. PHP 15,000. Multiplying this to 12 months then to 20 years this time will result in PHP 3.6 million. That’s PHP 1.6 million more! It’s almost double the amount you borrowed and this shouldn’t be considered as normal.

So what should be done then? Only borrow if you’re in an extreme situation. And in connection with this, let’s address what some usually think about when they borrow money, which is our last belief.

3. Borrowing money is the only option.

This mindset comes from feeling trapped by immediate financial pressures. Many people feel they have no choice but to borrow money for things like houses and cars, believing it's the only way to afford them.

But borrowing money should be a last resort instead of being the first option. It’s only a need when it’s a life-and-death situation and you already tried other possible options. Most of the time, impatience drives people to borrow, creating an illusion of achieving their goals.

What I mean is that people are comfortable with renting or commuting or not having the latest items. But because of social pressures or emotional reasons, it pushes them to get something they can’t afford yet. And this leads to taking out loans.

Keep in mind that there is always an alternative to borrowing money. It’s better to aim to increase income through aiming for a promotion or getting a part-time job or starting a business. This may need some sacrifices at first but this will help more in the long run.

To be clear, this isn’t about lowering your goals or letting go of your dreams, but rather encouraging personal and financial growth.

Banks have long conditioned us to believe we need to borrow money to fast-track our dreams, making loans and credit easily accessible. Promoting the idea that borrowing leads to ownership and success, but this can be misleading.

Debt does not bring freedom and can trap you instead. True freedom comes from increasing your income, saving, and investing to afford your dreams.

Choosing this path means you genuinely own what you acquire, free from debt. Though it’s not easy, it’s real and sustainable.

In conclusion, challenge the beliefs that keep you in debt. Remind yourself that what got you buried in it won’t help you get out of it. Doing the same thing won’t give you different results.

Recognize past mistakes and leave these common debt beliefs behind. By doing so, you can achieve real financial security and abundance.

Remember, financial freedom starts with making smart choices today. Stay committed to your goals. With patience and persistence, you can build a solid financial foundation and enjoy a debt-free future.

¹https://www.pagibigfundservices.com/ac/