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The debt sentence

August 28, 2012
Monday, 27 August 2012 19:44 Edmund Lao / Personal Finance
JUST what does the statement “Crime does not pay” mean?

“Crime doesn’t pay” is focused on the risk involved in “crime.” If you involve yourself in criminal activity, there is an inherent risk in getting caught. The higher the payout of the crime, the higher the risk of getting caught. Consequently, the higher the sentence.

Therefore if you get caught “crime doesn’t pay.” Simply put, lawbreakers do not benefit from their actions, and they always suffer the consequences later. In fact, most of the criminals get caught at the time they are nearing their golden years. The ironical thing is that due to the degree of the crime they committed, they are given life imprisonment (reclusion perpetua) or even worse, the maximum penalty which is the death sentence. Examples of heinous crimes that are punishable by death are illegal drugs trafficking, and murder,

What if the crime of a person is non payment of his debt? Is there a punishment? Sad to say there is none as of now. There is no one who has been imprisoned for not paying his debt. There are stories of people getting killed over unpaid debt. There is truth to the adage, “Debt is death to those who mismanage it.” Once I overheard one statement that goes like this, “Debt sounds like death. It might be the cause of your death.” Actually, the Bible has this to say:

Psalm 37:21 “T he wicked borrows and does not pay back, but the righteous is gracious and gives.”

If there is a death sentence for heinous crime against a fellow human being, there is also an equivalent penalty for no payment of debt to the creditor. It is the debt sentence.  The most accurate description of a penalty of being a debtor is found in Proverbs 22:7 “The rich rules over the poor, and the borrower becomes the lender’s slave.”

This makes sense. Years ago, a friend in need approached me and borrowed money. When it was time to pay, he was always nowhere to be found. He mysteriously disappeared. Then I realized I had power over him. He was afraid to see me face to face. Even if he is not physically my slave, mentally, he has become a slave not to me but to money. His fear of facing me has become his punishment. Worse, he just destroyed in just a short period of time the credibility he has built over the years.  The consequence of his action exceeds the value of the money he owed.

One of the most common personal finance crimes is to use the credit card and pay the minimum amount due. Credit card is a good financial tool. Used properly, it can be your slave. Abused properly, it can be your biggest problem. It is highly possible that majority does not know how credit cards can work against them. Innocence of the law excuses no one. The same holds true for personal finance.

Let us say the debt is P10,000. The minimum amount payable is P500 and interest pegged at 3.5 percent per month on the balance. Without considering other fees, it will take 33 months and P16,400 to pay off the original debt. Including the other hidden fees will result to a lifetime payment (like life imprisonment) and a never-ending accumulation of debt due to it’s compounding effect.

Most of the time, when people borrow money, they have a bad habit of using their home as collateral. According to Proverbs 22:26-27 “Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you”.

This verse makes perfect sense. I had a friend who loans out money in exchange for real estate property as collateral. Often times, the borrower would default on his payment. Then later, the borrower will be ejected  after the court judged in favor of the lender. The borrower has no choice but give up his property and look for house for rent. Instead of saving more money, he will be renting his shelter for the rest of his life, which is also equivalent to life imprisonment.

The penalty for committing a crime depends on its degree. The higher the degree, the bigger the punishment. However, all of the penalties translate to one thing: loss of freedom. With debt, one also loses his financial freedom. He will always be running after money to pay his debtors. He will, apparently be the perpetual slave of money and also of his debtors. If innocence of the law excuses no one, then the only solution to avoid the debt sentence is not to be financially innocent . If crime does not pay, then it pays to invest in financial education!

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From → add-on-interest, debt

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