People get into debt for many reasons: to finance a house, to pay for
necessary expenses, to obtain luxuries, and so on. Whether these reasons
are good or bad, no one wants to stay in debt for the rest of their
lives.
Gathering advice from people who were in deep and made their way out, here are some steps to take if you want to manage your loans and wipe out your debt.
Take stock of everything you owe. Managing and removing debt requires two things: planning and massive action. Unpleasant as it may sound, you can’t get to the second without doing the first. And the first step to planning is to look at the problem.
Sit down and make a list of all your loans, including your balance and interest monthly payments. Arrange them from highest to lowest interest rate. Now that you can see the length and depth of the situation, you can form a plan to attack it.
It will also help to talk with your family members, especially if they are your co-makers. Sit down with them and explain the situation and get them to support you. Even if the support is just moral in nature, it’s easier to climb out of debt if you have people in your corner.
Also read: Click Here!
Don’t add to your existing debt. It’s amazing how many people skip this part, so it bears mentioning. For the same reason you don’t fight a war in two fronts, you don’t pile more even debt on top of what you already have particularly if it’s an alarming amount.
So first, attack the problem at its source: cut up your maxed-out and extra credit cards, cancel your subscriptions, seek professional help if you must, but please don’t dig yourself any deeper into debt than you are now.
Also read: Click Here!
If possible, consolidate your debt. This means paying off the highest-interest debts by using low-interest ones. If you have a loan with 10% interest, see if you can pay it off by borrowing from one that has 4% or less. Not only do you save in interest payments, you reduce the pressure on yourself by lowering the number of people or institutions you owe.
Make debt servicing part of your budget. If you haven’t done so, build a monthly budget by tracking all your income and expenses. From here you can tell what spending you can cut back on to help pay off your loan faster.
You must get creative in lowering expenses, because every little bit of money can get you out of the red sooner. If you’re unable to lower expenses, look for extra means of income or sell off some things you own.
Once you’re organized, add your loan payments as part of your expenses, prioritizing the one with the heaviest interest rate. Once you have paid that off, move on to the next, then to the next, until you are completely free and clear. Each debt you strike out gives you a sense of accomplishment and progress and will spur you on to your final goal of zero liabilities.
Also read: Click Here!
Pay debt more often. In fact, pay it twice a month. This may sound strange, but it’s a powerful system you can use to end long-term debts (like mortgages) faster and save yourself a LOT of money. It’s a shame that few actually practice it. Here’s how it works: if you’re paying P10,000 a month for your debt, instead of paying it once a month, pay P5,000 every two weeks. By doing so, you are lowering your principal much quicker, because you’re making an extra month’s payment every year (that is, 26 bi-weekly payments or 13 full-month payments each year).
Here an illustration: If you borrowed P2.5M at 8% interest to buy a house and pay it over a period of 30 years, you’ll wind up with a little over P4.1M in interest payments. However, if you did the bi-weekly system, you would end with only P2.91M in interest payments instead. You save over P1.19M and get your house debt-free a few years ahead of schedule!
One final note: don’t misuse loans. Pay in cash for wants and luxuries, save up for large expenses, and think very hard before taking a loan or using credit. Debt is negative income; it slows down your capacity to earn. It’s a powerful tool if you use it to buy things that gain value over time, like real estate and education. Otherwise, you’ll just be earning for someone else.
Gathering advice from people who were in deep and made their way out, here are some steps to take if you want to manage your loans and wipe out your debt.
Take stock of everything you owe. Managing and removing debt requires two things: planning and massive action. Unpleasant as it may sound, you can’t get to the second without doing the first. And the first step to planning is to look at the problem.
Sit down and make a list of all your loans, including your balance and interest monthly payments. Arrange them from highest to lowest interest rate. Now that you can see the length and depth of the situation, you can form a plan to attack it.
It will also help to talk with your family members, especially if they are your co-makers. Sit down with them and explain the situation and get them to support you. Even if the support is just moral in nature, it’s easier to climb out of debt if you have people in your corner.
Also read: Click Here!
Don’t add to your existing debt. It’s amazing how many people skip this part, so it bears mentioning. For the same reason you don’t fight a war in two fronts, you don’t pile more even debt on top of what you already have particularly if it’s an alarming amount.
So first, attack the problem at its source: cut up your maxed-out and extra credit cards, cancel your subscriptions, seek professional help if you must, but please don’t dig yourself any deeper into debt than you are now.
Also read: Click Here!
If possible, consolidate your debt. This means paying off the highest-interest debts by using low-interest ones. If you have a loan with 10% interest, see if you can pay it off by borrowing from one that has 4% or less. Not only do you save in interest payments, you reduce the pressure on yourself by lowering the number of people or institutions you owe.
Make debt servicing part of your budget. If you haven’t done so, build a monthly budget by tracking all your income and expenses. From here you can tell what spending you can cut back on to help pay off your loan faster.
You must get creative in lowering expenses, because every little bit of money can get you out of the red sooner. If you’re unable to lower expenses, look for extra means of income or sell off some things you own.
Once you’re organized, add your loan payments as part of your expenses, prioritizing the one with the heaviest interest rate. Once you have paid that off, move on to the next, then to the next, until you are completely free and clear. Each debt you strike out gives you a sense of accomplishment and progress and will spur you on to your final goal of zero liabilities.
Also read: Click Here!
Pay debt more often. In fact, pay it twice a month. This may sound strange, but it’s a powerful system you can use to end long-term debts (like mortgages) faster and save yourself a LOT of money. It’s a shame that few actually practice it. Here’s how it works: if you’re paying P10,000 a month for your debt, instead of paying it once a month, pay P5,000 every two weeks. By doing so, you are lowering your principal much quicker, because you’re making an extra month’s payment every year (that is, 26 bi-weekly payments or 13 full-month payments each year).
Here an illustration: If you borrowed P2.5M at 8% interest to buy a house and pay it over a period of 30 years, you’ll wind up with a little over P4.1M in interest payments. However, if you did the bi-weekly system, you would end with only P2.91M in interest payments instead. You save over P1.19M and get your house debt-free a few years ahead of schedule!
One final note: don’t misuse loans. Pay in cash for wants and luxuries, save up for large expenses, and think very hard before taking a loan or using credit. Debt is negative income; it slows down your capacity to earn. It’s a powerful tool if you use it to buy things that gain value over time, like real estate and education. Otherwise, you’ll just be earning for someone else.
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