Be debt free Saturday, 12 June 2010 05:32 PM Fely Santiago on Philippine Online Chronicle

This is an article of Fely on Philippine Online Chronicle....


When I say, get rid of debt, I mean bad debt because there are two kinds of debt: good debt and bad debt. Bad debts are debts that increase your liabilities like a purchase of appliances on installment using credit card or a car loan. Good Debts are debts that increase your assets like borrowing money from the bank to fund your business, or taking advantage of a bullish stock market through a margin loan. The focus of this article will be more of getting rid of bad debts.

If there is any school that would grant us PhD in Debt Management, I think I would qualify and even get an award for it. Thus, I assure you, I know what I am talking about when I say getting out of the debt trap can be done.

You see, my spouse and I were really earning well with salary of six figures each. However, we were really not keen in managing our finances because of low financial IQ. Because of our big monthly income we just thought it was okay to have debts because we can pay for it. Wrong! We only realized much later that our debts and loans from our many credit cards and different loaning facilities ballooned to more than seven figures. Name it, we have it: SSS loan, PAG-IBIG loan, coop loan, emergency loan, personal loan, housing loan, car loan, multi-purpose loan, and even the pawnshop. The power of compounding interest was working against us. Instead of growing our money, we were losing a lot of money to these debts. We would borrow money just to pay off another loan. That went on and on until we realized that the monthly income is about to stop! Where will we get the money to pay our debts?

Now, did I get your attention?



This problem of living on borrowed money or debts affects so many millions of lives or perhaps billions worldwide. According to a Banko Sentral ng Pilipinas (BSP) media release, credit card receivables stand at P130.7 billion in first quarter of 2010. I am sure you, who is reading this article right now has some contributions to this enormous debt plaguing our society.

Mind you, this is not isolated to the low-income bracket or the middle class. This engulfs even those in the higher income bracket of our country. My relatives abroad are not spared from this. I am sure you do hear the same stories from your relatives abroad. There are also reports that many Filipinos in Dubai were put in jail in view of debts they cannot repay. In America, many are facing foreclosure and filing bankruptcies since they can no longer pay off their monthly housing amortization.

Loans and debts make people do things that lead them to more problems. Instead of finding a solution, they create more problems because they don’t know how. Worry not. There is a solution to these perennial issues on debt management. It just requires an education, a plan and a lot of discipline.

In our case we were really just fortunate that before we got into deep, deep trouble because of our debts, we got ourselves financially educated. We got a financial wake-up call when we attended the seminar of Bo Sanchez’ “How to Be Truly Rich” and “Truly Rich Financial Coaching”. So we search out for more and attended other wealth-management seminars thereafter. With the knowledge acquired and applying what we learned we got better equipped to handle the problem we were on.

So here they are, I am sharing the steps I took to get rid of the grip of debt!

Steps To Get Rid Of Debts

The first step is to stop borrowing NOW! Make that difficult decision not to spend on borrowed money. Kick off the habit of impulse buying especially using your credit card. Cut your credit cards immediately if you are drowning in credit card debts. Don’t spend money that you will still earn in the future because that money may never come! Create a budget so you spend only on what you need and within your budget.

Second step is to define a strategy to pay off your debts. List all the existing loans you have and line it up with the amounts and interest the loans has. For example:

1. Credit Card - P100,000 - 3.5 percent per month
2. Housing Loan – P600,000 – one percent per month
3. Coop Loan – P150,000- 0.75 percent per month

Come up with the deadline to pay off these loans prioritizing payments to the one with the highest interest. Then talk to your creditors and tell them about your plans and negotiate for a better payment scheme with the least interest, penalties or finance charges.

You may also look at balance transfer scheme offered by some banks if they can give you the least interest payments. If you can borrow money from a relative or a friend without interest, much better but promise to pay them.

Also plan to pay more than what the required minimum payment is. If you receive extra money from bonuses or windfall, use it to pay off your debts. The earlier you pay your debts off, the better.

Third Step is to increase cash flow. Reduce your expenses. Make a list of all your expenses and find out where you can reduce or eliminate. Live below your means. Simplify your life. Don’t go for that latest gadget or latest bags or shoes. Liquidate all none performing assets. Sell things in your cabinets, garage, or living room that you do not need and turn them to cash to pay off your debts.

Find a way to have alternative source of income to increase your cash flow. Use your spare time to earn additional income. There are a lot of companies that offer you this opportunity. Or turn your skills or hobbies into income-generating business. By increasing your cash flow, you are on your way to pay off debts faster.

Fourth step is to create emergency fund so you don’t have to borrow money again. Set aside three to six months your monthly income for emergency needs like minor illness, loss of job, and other unexpected spending. If you are forced to borrow money again because of emergency, then getting rid of debts becomes difficult again. So start building small amounts of money for your emergency fund and make sure you use it only for “emergencies”.

Lastly, as you execute this plan, make sure you keep yourself in the company of people with the same desire and discipline. Don’t go with people who are “spenders”. Go with people who are “savers” and “investors” so you yourself can start building your wealth and be totally freed from the bondage of “borrowing”.

Take it from me because by doing these simple steps I can proudly say “I DID IT!”