Having debt is something that everyone has experienced.
Whether it's utang from your suking tindahan or debt through a credit card purchase, it happens.
In fact, when planned, debt isn't a bad thing since it can actually help you pay huge purchases with less pressure.
It's also debt that allows you to invest in bonds, as bonds are technically representations of money borrowed from you by public and private institutions to fund large projects.
When is debt bad?
Personal debt becomes bad when you're spending more than you can afford, and you're beginning to drown in interest you can't pay.
Financial adviser Carrie Schwab-Pomerantz tells CNBC Make It that you should keep your "total amount of debt...to less than 36 percent of your total gross income."
When you're already having a hard time making ends meet, and are funneling almost your entire suweldo to pay off your debt, and you still can't completely do so, then you'll need to take more serious financial measures.
Or else you'll fall into the cycle of debt.
How to get out of debt
Finding yourself neck-deep in utang can be very scary, but with ample planning and enough precaution, you can slowly but surely get your finances in the green:
1. Stop borrowing money.
This is the most straightforward solution to start chipping off your debt.
When you stop borrowing, you stop adding to what you need to pay.
This option is easier done when your debt is big enough for you to tighten your budget, but not big enough for you to lack money for the essentials like food and utilities.
If you think that paying things off slowly means being eventually overtaken by interest then you can...
2. Opt for a balance transfer scheme.
If you have a high-interest debt in one of your credit cards and you're really having a hard time paying it off, try looking for an easy balance transfer scheme. Balance transfer literally means transferring your remaining balance (read: debt) to another credit card company with a lower interest rate. Since you're less burdened by interest, it's easier for you to manage your finances.
Remember, however, that balance transfers come with fees. Basically, you're paying for the service of transferring your debt, as well as enjoying lower interest rates. Fees are usually a certain percentage of your debt.
Here are a few existing balance transfer offers in the Philippines
- Security Bank promises 0 percent balance transfer if you apply for a Security Bank Credit Card Online.
- Metrobank offers installments from six months (with a 0.99 percent monthly add-on rate) to 24 months (with a 0.68 percent monthly add on rate).
- BPI offers installments from six months (with a 1.50 percent monthly add-on rate) to 36 months (at 0.99 percent monthly add-on).
- Citi offers installments at 6, 12, 18, 24, 36, 48, and 60 months, with an effective interest rate of .99 percent a month.
- Try zero-sum budgeting
According to personal finance blogger Holly Johnson on MoneyUnder30.com, "Zero-sum budgeting gives you the tools to improve your finances by teaching you how to a) live off last month's actual income instead of income projections, b) make actionable decisions regarding your money, and c) reduce waste."
First, you set aside money for savings (because you still need to do this even if you have utang) and debt. Then everything else should be allocated to bills, groceries, and other necessities. You shouldn't be left with any extra cash after budgeting and if you do have extra, you can put it in either your savings or your debt. This way, you can clear everything faster.
Go for an SSS Salary Loan
Whether or not you're a regular employee or are working freelance, as long as you religiously pay your SSS contributions, then you can easily go for an SSS loan.
Previously, the minimum monthly salary credit (MSC) of members is at P1,000, but with the signing of the Social Security Act of 2018, the minimum MSC is now at P2,000.
The higher the contributions, the higher the benefits—that means if you're employed and you're earning higher than PHP19,750 a month, your employer shoulders PHP1,600 of your contribution while you pay PHP800 for a total of PHP2,400 a month. This grants you the highest possible MSC of P20,000.
Now, your salary loan is based on your monthly MSC. In a Female Network interview, SSS Assistant Vice President for Media Affairs Ma. Luisa Sebastian noted:
"Under the salary loan program, a member is entitled to avail of the salary loan if he/she has paid at least 36 monthly contributions and has at least 6 posted monthly contributions within the last 12 months before the month of filing of application. A member who has paid at least 36 months but not more than 72 monthly contributions is entitled to a one-month salary loan; those who have paid at least 72 monthly contributions are entitled to a two-month salary loan."
For exact calculations, you can approach your HR team or send SSS a message on Facebook.
Pay on time
Another way to get out of debt is to start paying on time. This goes double for when you applied for a more manageable loan to pay off your utang. Paying on time means avoiding late fees and bloating interest rates, so you'll need to always take note of deadlines. If you're forgetful, always set an alarm on your phone that will go off two days before your deadline and on the exact day when you need to pay.
Change your lifestyle
It takes a while to get into the rhythm of paying off your debt, but once you do, you'll feel as if you have accomplished something big-and it is big, especially if we're talking about slowly and surely chipping away at that the amount you owe. This, of course, should trigger a change in your lifestyle:
- Stop being trigger-happy when it comes to swiping your credit card;
- Always write down your budget once you get your suweldo. Try not to spend anything before you've allocated everything;
- Ease off unneeded luxury expenses for the time being;
- Always monitor your necessary credit card usages (for example: life insurance payments, utilities, and the like) as well as your ATM withdrawals; and
- Be keen of your priorities and practice delayed gratification. Once you realize how great if feels to always be in the green financially, you'll learn that a few quick but expensive expenses isn't worth the stress you'll get from months (or even years) of paying everything back.