How to Pay Off Debt

Everyone may agree that at some point we are all living or may have lived with debt. Having debt is stressful and can cause commotion within your family circle. Debt is inevitable. We all want to be debt free. We hate collection calls as much as we love spending.

However, how can a meager earner Filipino worker combat debt and be debt free to have a little of something to spare for emergency fund, savings and investment, or to buy a little gift for yourself or for a family member.

Say for example, a friend of mine (with his permission but requested to be unnamed), a regular call center representative who is earning a gross income of Php 20,000 a month with some perks and allowances. However, my friend was living in debt for the past 12 mos as he wasn’t able to pay his housing loan through a government housing loan. His accumulated arrears were Php 49500 and with his monthly earnings he wouldn’t be able to pay off the arrears one time. “It is stressful having the collection company harassing you and you still have to manage your finances to make sure everything is paid on time.,” he said.

Preparing to Pay off the Debt

There were things that you really have to consider to make sure you are paying off the debt. Remember that the more you extend the days or months in paying the debt the more the fees are accumulated including the monthly minimum payment due is also added to the amount of the arears. So, you really need to consider everything to make sure it is paid off as early as possible.

He may had some difficulty in the previous months that had unable him to pay and accumulated the arrears. So in order for him to make sure he will keep the house and keep a shelter over his head he would have to pay it off before it will be foreclosed.

Here are the steps he did to pay off his arrears as he needs to pay off the Php 49500 in a month.

• Identifying the necessary Expenses that cant be compromise. He needs electricity where he normally spend Php 1500 per month, his water bill is Php 250 and mobile telephone bill where he cut it down from Php 3000 per month to Php 1200 plan and Food allowances for the family is at Php 6000 per month. So basically, his uncompromised expenses have a total of Php 8950.

• All His Unnecessary Expenditures –So he went over his Finances. He cut down all his vices in half and eliminated everything that he thinks is unnecessary. For example, he needs to drink coffee so instead of buying at Starbucks at Php 170 per day he opted to go with a coffee served in his office pantry that’s Php 3400 saving for a month. He also cut his cigarette consumption in half per day. He is spending Php 80 per day that is at least Php 1200 savings per month. He normally takes cab everyday going to work so he took advantage of jeepney and MRT ride and he saved Php 3500 in a month. He is spent Php 200 for food allowance at work so he instead packs his lunch and saved Php 5000 in a month. Eliminating and cutting down his unnecessary expenditure alone has saved him Php 13100. However, he realized along that he was overspending. He is living above his means. His only take home pay was Php 2000 net including the other perks he gets in his work. With the savings he has for cutting down his unnecessary expenses he was able to be living on his means and saved Php 10000. Despite cutting it and saving has bring down the arears to Php 39500

• Loans – He reminded himself to cut down his credit card so taking cash out of his credit card was not an option. Never withdraw cash and or use your credit card just to pay another credit. In fact, you should only use your credit card for necessary expenses and if you can pay it off monthly. So, he filed a loan through SSS. He was approved for Php 2500 payable for 2 years and will be automatically be deducted on his pay check. With his SSS loan he only needs Php 14500 and he will be able to pay off his debt.

• Selling Gadget and other appliances – He there’s only one thing he can sell and it is his brand new laptop that he just used for a month. He was able to sell it at Php 10000 bringing down to Php 4500.

• Salary – He took the remaining Php 4500 out of his salary. He talks to his family that they’ll have to sacrifice their meal to save the house. So instead of having hotdog and ham in the morning they’ll have egg and canned sardines from meat to vegetable.
  
  
  That’s how my friend his debt of almost Php 50000 in a month. The reason why I am sharing the story is because for most of us we go to work everyday and we burn our ass out at work but we are still in debt or we dont have money to pay a hospital bill. I myself is facing a very bad debt. I learned alot from his story and I hope you learn a lesson too. I also hope I can pay all of my debt so I can start saving for my emergency fund and then my retirement plan. I am not getting any younger and I dont want to look back and again say I wish I could have saved a little of my earnings when I am still able to work.

Share below your story as well on how you paid off your debt.