• Pawning: Debt freedom and responsibility

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    PAOLO ALDECOA

    PAOLO ALDECOA

    To those who have never needed to borrow money, the thought of being in debt is a foreign concept. It’s a whole different story when a loved one is struck down by illness and the bills start exceeding your financial capacity. Even the most stalwart resistors of borrowing money will find their principles tested in the face of adversity.

    Borrowing money is not the problem
    There will come a point in your life when you will have to borrow money. There is nothing wrong with that if you know how to stay in good credit standing. Given that you have to spend for your essential day-to-day expenses, however, the time may come when payment for the loan is due and you find your resources short. Life just happens, and people just need to find a way to make do with what they have or adapt.

    The real problem comes when the need for money draws people into a cycle of debt that not only self-perpetuates, but becomes crippling to those who are easily trapped by it. Being unable to pay back a loan can mean animosity with family or friends from whom you borrowed money, or the constant nagging of, if not harassment, by collection agencies.

    The scope of the problem can be seen in the Bangko Sentral ng Pilipinas’ Inaugural National Baseline Survey on Financial Inclusion. This survey found 47.1 percent of Filipinos have borrowed money. Only 33.8 percent have managed repayment of the debt and never went back. That leaves 13.3 percent still in debt.

    If you’re in debt or considering borrowing money, you’ll need to have a good sense of responsibility to take the right steps in order to make ends meet. No one wants a family member or a loved one getting sick. But it happens, and how you react to such a situation is critical when you’re in a challenging financial situation.

    Pawning hinges on a sense of responsibility
    Pawning often gets a bad reputation. With many of the more prominent names in the industry hitting mainstream consciousness, it’s safe to say that many Filipinos do embrace this type of lending business. So where does the negative image of that practice come from? While it’s entirely speculative, it may have to do with the fact that defaulting on a pawn loan entails the loss of something valuable.

    In an article that we’ve shared with MoneyMax.ph, we said pawnshops are very popular among Filipinos because of the easier threshold of entry. All you have to do is own something valuable and you’re guaranteed to get a loan from a pawnshop. It has long been the go-to source for emergency funding.

    But there lies the beauty of pawning. It’s not easy to waive a debt or a loan away because you know what you can lose! This one factor is critical toward developing a sense of responsibility that gets one out of debt. It isn’t as easy to approach borrowing money in a haphazard manner when you have a greater sense of what you can lose.

    That loss of a valued item is the only loss you’d incur. Pawning completely squares out in the end whether or not you pay out your loan, unlike other loan products where defaulting is a hit to your credit rating. This also spares you from being hounded by collection companies that tend to hound debtors relentlessly by pushing people to making bad financial decisions. This could be through borrowing more money than they can pay back.

    Can you go overboard with pawning your stuff away? The risk exists and there will always be people who will fall into the trap and leave their valuables in pawnshops rather than getting them back. This introduces the element of potential loss that can be shifted to a higher sense of self-control, if you remind yourself that such loss is entirely within your realm of control.

    So why not just sell?
    Selling is a good alternative to borrowing money and pawning. You’ll get a better price depending on where you sell your items. The determining factor to this is whether those items have sentimental value to you. It’s all on a case-to-case basis, but the important thing is remembering what you cannot afford to lose.

    Pawning is something worth considering for those who need cash fast but don’t want to be straddled with a rolling debt. The risk of losing an existing asset in the short term is far better than muddying your financial future with a negative credit rating in the long run.

    Paolo Aldecoa is the Content Specialist of PawnHero.ph. He has contributed to other company blogs that mainly deal with finances and technology. PawnHero.ph is the country’s first fully online pawnshop aiming to help Filipinos get quick cash loans for all their needs–without the risk of drowning in debt.

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