Credit discipline: Staying away from debt

Credit discipline is a timely topic, especially nowadays that it's the season of the year where everything seems to be "on sale." To date, I know a lot of friends, associates and even former colleagues who fell in the so called "debt-trap" and until now paying for it. Almost always it has something to do with ease in getting a credit card and now having a hard time paying for it. As always, I know I have been writing this stuff almost every year but not only this is relevant to present economic situation but it could also save us from some serious headaches in the coming New Year.

First, let me define the two terms: credit and discipline. In simple terms, credit is defined simply as (1) trust; or (2) promise to "buy now and pay later" under designated "terms" for goods or services. The exact meaning depends from what side are you,either you are the creditor or the debtor. Discipline on the other hand is defined as strict and regular mental or moral training. So in short, credit discipline can be defined as "strict and regular control on promise/s to pay, within designated/ agreed terms."

Credit discipline is important because it affects positively or negatively to our credit history and credit health or more commonly known as Credit Risk Score. Credit Risk Score most especially in the Philippines is a rating system used by lenders, credit issuers, banks, financing and financial institutions to let them know our credit risk level and to help them make sound credit decisions. This system answers the most basic question: If I give this person a loan or credit, how likely is it that we will get paid back ON  TIME?

Attaining credit discipline is easier said than done, what with so many liberal credit card issuers and/or financing/ lending companies that are giving "pre-approved," "easy-loan" and sometimes so aggressive that they literally "entice us to make that loan" or "make that purchase?" The "ease of getting credit or loan makes people feel that they have power and control. Consumers are made to feel guilty for not using credit or for not having a credit card."

This is like the "sale madness" we have practically all-year round. Although this is good for the economy because of the increase in consumer spending, it will have a whiplash if there will be also increase in delinquency and past dues. No wonder every day, our interest rates are high and our courts are full with BP 22 (bouncing checks), sum of money and collection cases.

If you are wondering why a lot of individuals are in debt, chances are, it has something to do with one of these: (1) Unrealistic expectations (2) Easy credit (3) Too many credit cards or store cards (4) Not having the income to support wants (5) Moving loans from one company to another (6) Not paying off loans before getting more things (7) Feeling a need to have what others have (8) Children's wants and giving in to them (9) Loss of job (10) Loss of income (11) Changes in family, e.g., new child (12) Separation (13) Not having money set aside for an emergency.

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