With sale signs everywhere, watch that you don’t end up in debt 1

With sale signs everywhere, watch that you don’t end up in debt

Aneth Ng-Lim

Posted at Nov 13 2023 02:10 PM

Warren Buffett, considered as one of the greatest investors of all time, gave this advice to a young investor at his company’s annual meeting for shareholders: “Just don’t get into debt. It’s very tempting to spend more than you earn, it’s very understandable. But it’s not a good idea.” 

No one really wants to end up in debt, but it’s one of those things that can happen, and if it has happened to you, you may even say it was out of your control.

But is it really? How does one fall into debt? Some do because of unplanned medical expenses, family crises, or personal emergencies. And then there are those who just went shopping, with no budget and spending limits, and then kept shopping.

Spending has actually become one of the most popular modern-day temptations. You don’t even need to be in physical stores to shop. You can be on a long commute and stuck in traffic and check out an online shopping cart with things that are nice to have, but you may not really need. Post the pandemic, consumers went on revenge spending, and then revenge travel, and based on the latest data on credit card spending, it seems Filipino consumers are still on to both.

The hardest part in trying to avoid debt is limiting yourself. However, there are strategies you can use to avoid falling into a debt trap and here are some of them.

#1 If you can’t afford it, don’t buy it

How did your wallet fare during the 11.11 sale? There’s more to come with payday sales, Black Friday sale, Cyber Monday sale, holiday sales, among others. These sales market big-ticket items as cheaper and may tempt you into thinking that what was not affordable to you before is now within reach. Even with zero interest, long payment terms and discounts, do your math to see if your wallet will not hurt with the purchase.

#2 Take only cash you can afford to spend when shopping

Something about paying with cash makes a purchase more real, and others say, more painful. One convenient thing with paying with cash? When it runs out, you have no choice but to stop shopping. It’s also a good reality check for you and your wallet – if you don’t have the cash now, then maybe you should not be shopping. 

#3 Set spending limits and stick to them

For others, a budget is too troublesome to make and follow. Keep it simple then with spending limits. Whether it’s P1,000 or P2,000 or P5,000 or P10,000, set an amount that you can afford to spend monthly on wants and personal treats. Shop for new clothes, go for spa treatments or even save it up for one big spend like a vacation in six months. When you know what you can spend without going into debt, then you can enjoy your purchases guilt-free.

#4 Avoid offers that simply postpone debt

It’s hard to say no to zero percent interest, or to buy now and pay 3 months later promotions. These offers are designed to let you have something you need or want now, without coughing up the cash. But you need to realize that these schemes only postpone debt, and that credit card companies are banking on you not being able to make the full payments so they can charge interest on your balance (that’s how they make money). If you expect some cash to come your way around the time the bill becomes due, then go for it. Otherwise, it’s better to just say no.

#5 Is it time to lock away your credit cards?

If you’re unable to pay your credit card balance in full, not just this month but for some time now, you are already in debt. Consider this advice from Buffett: “If you’re deep in the red, it may be a good idea to never look at a credit card the rest of [your] life.”

Credit card debt is one of the most expensive personal loans so try to do these now to climb out of your debt trap: (1) at the very least, always pay more than the minimum payment on credit card bills; (2) stop using the credit cards with balances, especially the ones with higher interest; and (3) consider transferring balances to a lower-rate card, making sure the low rate applies to balance transfers.

As you pay off a credit card, cancel it immediately and keep no more than one to two credit cards. The less access you have to easy loans, the better.

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Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.