Do you have ‘debt asthma’?
Recently, a person approached us for help on their family debt through our free EnRich GOOD (which stands for Getting Out Of Debt) service.
The background is that the wife resigned from work and it is now just the husband who is the breadwinner. For some reason, they were not able to manage their cash flow well. But before the ground gave way beneath them, they still were able to assume a housing loan under a friend’s name to acquire a modest bungalow beside their current home because “the opportunity presented itself.” Years before, they also contracted a modest car loan.
But because of a string of bad luck and medical expenses on top of growing household expenses, they resorted to borrowing to plug their budget gap with personal loans from friends, some of whom charged high interest.
Now, it has come to a point wherein they cannot take on any new refinancing loan anymore as the rates on such loans would only be higher. Their situation is indeed dire, similar to what we call “debt asthma.”
Asthma is a chronic condition of the lungs in which the air passageways turn inflamed, swollen and become overly sensitive. As a result, the muscles around the air passageways tighten while excess mucus may be produced. All in all, the air passageways narrow and make it difficult to breathe.
With asthma, the air passageways narrow mostly during exhalation. This is because in inhaling, the air passageways open slightly as the chest expands. However, in exhaling, the narrowed air passageways collapse inward as air is pushed out, thereby causing wheezing.
Similarly, a household that has debt asthma may still find it easy to borrow with the influx of loan proceeds but will find it very difficult to repay such loans precisely because of a constricted cash flow.
Our advice to the client was hard to swallow. But they had no choice but to sell their current home and car, use the proceeds to pay off their larger personal loans and car loan and move into the smaller albeit newer home whose loan they assumed. This is not an ideal situation to be in because their backs were up against a wall. But that is the price to pay if the wrong use of debt is not addressed immediately.
So, how can you minimize the risk of getting debt asthma? The risk of getting debt asthma can be minimized similar to minimizing the risk of developing asthma itself.
Firstly, asthma can be passed on from one generation to another and so can the penchant for using debt as the easy way out of tight cash flows. If your family has a history of heavy borrowing, condition your mind to avoid debt like the plague and to run away from the temptations to borrow.
Know your triggers. With asthma, the common triggers are allergens, irritants, weather changes, infections, exercise, stress and food. In the same way, the urges to spend will be the number one trigger to borrow. So, minimize time on online shopping platforms and physical shops. Schedule those infrequent visits. If you find something you like, look for other suppliers and, as much as possible, read the worst reviews.
It will help if you maintain a budget so that you will know at any time how much money you have saved and how much money you have left until your next cash inflow. Debt is not bad in itself. But debt that is used to buy earning assets is superior to debt that is used to buy nonearning ones or even used for mere consumption.
Maintaining a healthy lifestyle will also minimize jumbo health expenses, which oftentimes lead to debt. So, eating a balanced diet and having periodic checkups are important. If you are not provided HMO by your employer, perhaps you should get an affordable package for you and your family. A visit to the ER can already cost you Php10,000.
Finally, choose the people with whom you hang out. As the saying goes, birds of the same feather flock together.
Having an asthma attack is never fun or easy, much more debt asthma.
