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How to Get Out of Debt Philippines

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How to get out of debt Philippines – the availability of loans and the ease of obtaining them in the Philippines can play a low-down trick on a person. There is nothing wrong with taking out a loan to buy a new phone and gradually paying off the debt. However, there are situations when people take several large loans at once.

Another option is lending to microfinance organizations that promise quick money before payday. The conditions seem favorable only initially until the amount increases several times. As a result, a person finds himself in a deplorable situation and does not know how to get out of debt Philippines. With a significant delay, collectors appear on the horizon that can drive you crazy with psychological pressure.

It is effortless to get a loan: banks are ready to issue them even without problems. It attracts more and more customers who are ready to take a cash loan. Unfortunately, soon the moment of retribution for their rash actions comes, and the Filipinos begin to look for all possible options to repay the loans. People start worrying is not paying debt is a crime in the Philippines and how to pay it off. There are some practical tips to pull yourself together and pay off your debts.

How to Get Out of Debt Philippines
How to Get Out of Debt Philippines

How to Pay Off Credit Card Debt

Php 297.49 billion is the amount of credit card debt Filipinos have as of February 2019, according to Bangko Sentral ng Pilipinas. And due to the pandemic, credit card delinquency rates increased by 11.5% as of the end of September 2020.

The most accessible type of debt to accumulate is unpaid credit card balances. The snowball principle is at work here — one action will undoubtedly lead to the next, and a small debt will turn into a hard-to-manage debt that can reach huge numbers.

Many are interested in how to get out of credit card debt Philippines. The answer is simple — it is essential to consider all the nuances that make credit card debt one of the most challenging types of debt to pay off. These include low minimum monthly payments (in the range of just 3% to 10% of the total outstanding balance) and credit card fees on top of the outstanding balance. If a Filipino has credit card debt, he can be sure that the situation will not last long, and he will get out of it — only if he starts paying off the debt now.

What to Do to Get Rid of Debts?

Here are some tips to help you figure out the best way how to get out of debt Philippines and get on with your life. How to get out of debt Philippines:

Make a List of Debts

Not everyone keeps track of their debt, but it’s better to know exactly who and how much you owe. Write down all debts according to the scheme: creditor, rate, term, balance, and minimum payment.

Prioritize, Prioritize, Prioritize!

You need to understand which debts to pay off first and which can wait. You can divide all obligations into long and short. Short are most often excess expenses that our Wishlist has led to. This category includes payday loans, credit card debt, and consumer cash loans. At the same time, long-term investments are investments in the future: car loans, loans for education and business development, and mortgages. In the name short lies the recipe — they need to be taken on in the first place and can be quickly dealt with in a short time. 

Report Problems to the Lender

If the income is not enough to pay all the loans and if you don’t want to find out what happens if you don’t pay credit card debt in the Philippines, go to the bank and honestly admit it. A banking specialist will assess the situation and help find a solution that suits both parties. Allowing delays and even more to hide is a bad option, as your credit history will be damaged.

You may be offered:

  • Credit holidays are the best way out of temporary financial difficulties: finding a new job after being fired, medical treatment, etc. Payments will be frozen or revised for a period, usually from three months, and then resumed. Several options are possible: pay nothing, pay a smaller amount, or only interest;
  • Refinancing — issuing a new loan to pay off the old one, but on more favorable terms. It is relevant if the loan was taken a long time ago and during this time, interest rates have fallen, or if there are several loans and you want to combine them into one more profitable one. Refinancing can be carried out by both the current and the new lender;
  • Restructuring — extending the loan term, due to which the monthly payment will decrease. As a result, you will have to pay more interest, but the prices will become feasible.
Loan Debt Philippines
Loan Debt Philippines

Pay Above the Minimum

A significant part of the minimum loan payment interests. Therefore, you will quickly get even with debts by adding even a tiny amount on top. Add 10% to each payment and deposit money regularly (if necessary, set a reminder). It will allow you to get used to financial discipline. And in the future, the habit of saving 10% will help with savings.

Turn to Auto Payments

Shopping is always more pleasant than paying debts. So that your hand does not tremble, connect automatic payment from the card. Money will be debited at the specified time and date. Thereby, you discipline yourself, eliminate delays and be able to live with a clear conscience.

Keep Track of Your Expenses

In the mobile applications of many banks, you can analyze your spending. You can also install an additional application for managing income and expenses on your smartphone or keep track of them in a notebook. The rule works if you consider spending even on small things, such as buying a pen or a magazine. This approach will allow you to see which category you spend a lot in and what you can give up.

Don’t Neglect Planning

Do you have a birthday soon? Allocate the amount in advance and do not exceed the budget. Have a family reunion, trip, or party coming up? Cut your monthly budget a little to meet it, or take a part-time job to cope with your current debt.

Give Up New Loans and Pay Off Existing Ones

One of the most common mistakes debtors make is making new loans to pay off old ones. Having lost a source of income, people are sometimes forced to take out a new loan and pay off the old one to avoid delays in monthly payments.

They go to a microlender to do this — it’s easier and faster, especially in urgent need. But microlenders lend out money at a higher interest rate and often charge service fees. Therefore, before applying for a new loan, consider other financial instruments: restructuring, refinancing a loan, or, in extreme cases, a loan holiday.

It is essential to review loans and determine which one to repay first. Experts advise starting with a credit card or other loan with the highest interest rate. There are two repayment strategies: snowball and avalanche. In the first case, the loan with the smallest balance is closed first, and the minimum payment is made for the rest.

When the first loan is completed, the released amount of the monthly payment is sent to the early repayment of the next smallest debt. In the second case, additional funds (in addition to the minimum monthly fee for each loan) are directed to early repayment of the loan with the highest interest rate.

Increase Your Income

To save less, you need to earn more. Think about ways to increase your income. One option is to monetize your hobby or functional skills: photography, writing texts, creating illustrations, or 3D graphics. This additional income allows you to become self-employed and take orders from legal entities. You may even be able to put your own business on stream, which will significantly improve your financial situation.

Understand How Credit Cards Work

Credit cards are a good thing. They help out before the salary and help you buy an expensive something right away without going to the bank office. But it’s better to avoid delays. If there are several credit cards, pay off the debt on the one with the highest interest rate first.

Think before you make an impulse purchase: The first rule of being a financially savvy person is to spend less than you earn. When used correctly, credit cards can also help you save money — for this, choose cards with free issue and cashback, which allow you to return interest on purchased goods and services.

How To Solve Debt in the Philippines
How To Solve Debt in the Philippines

Key Take-Aways About How To Get Our Of Debt Philippines

So, how to get out of debt Philippines? The reasons leading us to a black hole of debt can differ. Sometimes, the only chance to get out of a difficult situation is to apply for a bank loan. Then, to insure yourself, you should turn to the help of guarantors. Thoughtless and unreasonable loan processing may soon turn into a problem, and then it will be necessary to solve another question: how to be the debt-free Philippines?

If you wonder can someone be imprisoned for not paying the debt in the Philippines, this is not the case, but many problems can be amassed. One can only strengthen the belief in a speedy solution to the problem, but in reality, all is required is to attract additional income and reduce costs. To not become a hostage to eternal obligations, it is necessary to stop using easy loans and start managing your finances thoughtfully.

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Linda Carters/ author of the article

Financial Journalist on Advance Loans Philippines with 8 years experience in a Fintech niche.

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