Before you address your problem, try to look back and see how it started. You may be among thousands of Filipinos who are saddled with debt accumulated slowly over the years. This may be the result of living beyond one’s income, lack of planning, or sudden emergencies that force one to borrow, among many other factors.
For many, debt can creep up unknowingly. A personal loan here, a mortgage there, plus months of just paying the minimum amount due on your credit card, could add up until you one day find it beyond your control.
Whatever the cause, what’s important is that you take immediate action before debt paralyzes you financially and even legally. Your action will have to be on two levels – behavioral and financial – so that you can effectively cut down your debt.
Here are seven steps to help you surmount your mounting debt:
1. Take a hard look at your finances.
This step is necessary since retiring debt calls for a sound plan that you can implement. Try to determine what you are paying for and how much. Just knowing how much you owe can surprise you. By doing this, you will also be able to determine which debt you have to prioritize, e.g. those that cost the most to maintain. You would like to retire the debt that charges you 20 percent a month ahead of the debt that charges you 12 percent a year. Understanding your finances will also allow you to come up with a workable solution.
2. Restructure the most expensive loans.
Today is a great time to restructure loans, given the low-interest rate environment. Are you paying credit card debt? Possibly with more than one credit card company? You will never get out of debt if you do not manage this. Talk to your credit card providers about restructuring the loan. You may also get a personal loan at a lower interest rate to help bring down your interest costs. Study all options available to you, while taking note of penalties and transaction fees.
3. Slash, not just cut, your monthly expenses.
Look at your lifestyle to find out where you can scale back. If you spend so much on entertainment, then cut this drastically. No more expensive night outs or fancy dinners for the time-being, unless you can find more affordable alternatives. Forget expensive vacations. Turn off the aircon and use an electric fan instead. Skip the expensive hair treatments. The cutbacks you can make will all count.
4. Sell assets. Raise cash to retire your loan by selling off assets, big and small.
Do you really need two cars? Do you need to stay in that very expensive house or would a smaller unit in a less luxurious part of town suit your purposes? Those diamond rings sitting in the closet may be your ticket to debt freedom. Even those expensive bags you picked up in your shopping sprees could fetch a fortune in the second-hand market. Selling off assets could help you bring down debt levels drastically.
5. Find additional income sources.
Find other cash sources so that you can put this toward retiring your debt. Are there additional projects you can take on or other jobs you can hold? Try tutoring children in your spare time, or baking cookies on weekends. Your creativity is your limit. This new income source will give you the elbow room to wiggle out of debt.
6. Live below, not just within, your means.
Sometimes you have to change your lifestyle drastically. You may need to dress simpler, consume less, and live a less luxurious life. You may look into selling your car and going back to taking public transportation to work, if your car loan is the cause of your debt burden. If living independently is causing you to bleed financially, think about moving back to your parents. Perhaps the kids could go to a less pricey school. The situation varies per individual, so take what is most appropriate for you.
7. Pay off as much as you can.
Try to retire as much debt as you can, to keep interest costs low and to hasten the debt retiring process. Pay more than the minimum amount due on your card. The longer you are in this situation, the more stressful it can get for you. Bite the bullet now and embrace the inconveniences and hardships it brings, knowing that this is necessary on your way to getting out of debt.
In all these, do not forget to stay focused. Don’t lose sight of your goal, which is to free yourself from debt that can affect you for life if you do not act on it now. By staying focused, you will be less tempted to spend on unnecessary items or to slack off in your debt retirement efforts.
Have a spreadsheet to help you monitor how close you are to your targets. Stay positive and remind yourself that freedom from debt will soon be at hand.
source: www.abs-cbnnews.com
