Life After DEBT: Should I Settle My Debts Before Investing?

 

Question: Hi Kuya, I just want to ask a financial advise from you. I’m really eager to start to invest in the Stock Market because my roommates are already investing. The main reason that is hindering me is that I have debts from my credit card. My bonus that I will receive next month will go all for payment for my credit card. Should I settle all my debts before Investing?
– Maureen Rhea, CPA,sent through FB
 
Hi Maureen, Thank you for having an eagerness to start early in investing. By having that interest alone, will bring you far in life. I’ll be more practical in my advise since debt is something everyone of us has become a personal struggle. On different degrees, we all have problems with it at some point. I don’t want to be a self-righteous because until now I’m still paying debts… Those are coming from my suppliers from my failed businesses before. I’m on the payment arrangement and still paying it slowly. 
 
I’ve read a book Till Debt Do Us Part by Chinkee Tan and it has revolutionized my mind and open my eyes to the damage that a debt can inflict into my life. I was tired of that same old lifestyle and I called it a quit! I understood that the way out of it is to break-free…By God’s grace, I was able to get out and I hope that you will do too…
 

”Paying your Debts is already a form of Investment”


Believe it or not, Getting Out of Debt is a good investment and having a good reputation is essential in business and investing. I worked for the biggest high-speed internet provider in the U.S. which provides the fastest connection among others and I’m in both tech and sales.


When we have new customers who want to subscribe to our services, we screened them through credit check through their social security number. Companies profile them through credit scores and that’s how they gauge them  in getting loans and other financial leverage. I even talked to an OFW who told me that to be able to make your life easier in the U.S., you  just have to maintain a good credit standing. 



Good credit standing gives you a good night sleep. Here in our country, we have a different process but without having much debts can get you out of many troubles. Few years ago, I promised myself that I will not borrow even how small the amount is not unless it’s for business purposes. Borrowing is a bad habit and it’s all complimented with our impulsive behavior


I’m not against using of credit card, it is just I’m not a fan of it. Spending through credit card is using the money you haven’t earned yet and it gives you a high price tag in return. With the convenience it gives you, if you fail to pay it on the allotted time, you’ll gonna pay a very high compounding interests in the company’s favor. If you have a credit card, my financial advise is to use it responsibly.

 

“You can’t Get Out of Debt by Paying it from another Debt”

 
I can’t grasp the logic of this manner but I think if your creditors are already looking after you “kapit na lang sa patalim“. For me, people gets broke because of this and it entangled them that they don’t have already a way out.  Getting into debt has a chain reactions and you will keep on doing it over and over again. In my company, many employees are using their ATM to the creditors to guarantee a payment because they don’have much options.
These type of arrangement has a very high interest rate most of the time. Debt is like “Pandora’s Box” that you will enjoy it for short-term but will destroy you for the long run.


Read my blog on How I Escaped From Being Broke to Become an Investor

 

“There’s only one Good Debt. When you use it for Business Purposes”

 
You can consider this but please be responsible once you’re already into it. It’s a good thing to leverage money from bank loans or other financial institutions to use it to your advantage but it’s not wise to borrow when your just on a start-up business. When you are new in business, funds should be coming from your resources first. You will have more pressure and my business failed because I was not that stable and most of my fundings were borrowed.  


Before setting up your business, build first your emergency fund to use for this purposes. Have a 3-6 months buffer funds. A Singaporean business tycoon told me that he made his emergency fund good for one year so that if his business fails, he can still have one year to look for a job.



“Debts can’t be use to Invest”

 
I was asked by my colleague if it’s okey to get a loan to fund his initial capital in the stock market. For me, It does not make any sense at all and you can’t invest what you do not have. By principle, The money you will invest has to be an extra-money that you will not use for a period of time, say 5-10 years. Market is so volatile and you’ll might get frustrated that your interest in your loans is bigger than your earnings in your portfolio. 

 


“Getting Out of Debt needs Action Plan”



Getting Out of Debt is a personal decision and it needs a timely application. Borrowing is more on behavior and to turn against it is to change our mindset. I knew somebody who always become sad when she doesn’t have money and ends up borrowing and borrowing all the more. It is never too late to turn things around! Once you were able to get out of Debt, you’re one step way to your Financial Freedom! 


Kindly read this blog The Art of Borrowing to learn more on how to live a Debt-free life.

 


 

                                                                                              

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