“Utang” or Credit has been a dirty word in the Philippines. Friends and families, social media, and news articles are full of stories of how people have ended up in endless cycles of debt. There is definitely bad credit but there’s also good credit.
When used properly, credit can be a powerful tool to aid in handling your finances.
Credit can be used to manage your finances
If you need something today or tomorrow but are expecting your funds to come in two weeks or one month from now, then affordable credit will be very handy. Note the keyword affordable. For example, if you need to pay your rent in two days time and risk getting kicked out of your home should you be late in payment, and your income is expected to come in two weeks later, credit will bridge that gap.
Use credit on necessities or assets
Rent, utilities, and groceries are examples of necessities. You can also use credit if it’s to fund an asset, which brings in more cash flow to you. For example, property investments, a business, or a side-hustle.
Unfortunately, unless you are using a new car, phone, or designer shoes for business purposes, these are extra expenses which will play against you.
Credit can be used to save money
In certain cases, such as that of the credit card, if paid on time, it’s a free 30-day loan that comes with rebates on purchases and other benefits.
Credit is not income
Remember: credit isn’t a replacement for your income, so use it wisely. Credit usage requires planning and reflection. We say reflection because credit should be used for things you really need rather than for your wants. We say planning because you must ensure that you can pay off your credit line on time, every time to avoid incurring extra fees.
Many people end up in a cycle of debt because they have borrowed more than what they can pay off. Think before you spend and keep learning about personal finance. Soon, you’ll be able to use credit and other financial tools to your advantage!
Jam Zulueta
Jam is passionate about Small and Medium Enterprise (SME) finance, financial inclusion and improving access to credit across Southeast Asia. He's also a highly active career coach and career advisor! Catch him @jglzulueta on LinkedIn.
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