When the Christmas season rolls around, thousands of Dominicans (as) receive their 13, tax-free salary. This leads us to think, what to do with that additional salary? In times of persistent inflation and fears of recession, we need to be “assertive” in economic terms, so it is imperative to make the best decisions.
Using credit and getting into debt, in itself, isn’t necessarily a bad thing.
However, there are two types of debt: good and bad.
When we go into debt to buy a house, we can go into a lot of debt, but the interest rates are lower than other options, and buying that asset, which can increase in value, is an acceptable form of debt. The same goes for student loans, since you’re financing a degree that could increase your earning potential, often at a low interest rate.
On the other hand, if you go shopping at a mall with a credit card, which has an annual interest rate of about 60%, and then make the minimum payment, that’s bad debt. And more if you buy “things” that don’t increase in value, as you’d be paying high interest to buy them if you have a balance on the card.
Getting into “debt” doesn’t have to be difficult, but it is essential to achieving some degree of financial independence. The first thing to do when you’re in credit card debt is to pay more than the monthly minimum. If you pay just the minimum each month, it will often take you forever to pay off the debt and you could end up spending hundreds, even thousands of pesos in interest payments when the debt is paid off and more when interest rates rise.
Let’s take advantage of the 13th salary or Pascual Royalty and try to be more “rational” in the use of spending. Let’s avoid advertising that leads us to unnecessary spending and try to overcome what Richard R. Thaler, Nobel Prize for Economics 2017, proposed: “limited rationality”.
