Fully paid: 10 tactics to be debt-free

“How do I pay my utang” is one of Google’s top search topics, with at least 8.6 million hits, with financial literacy-related YouTube videos like “Utang-Free Diary” topping search results.

Yet Filipinos are still borrowing. Mobile wallets PayMaya and GCash offer unsecured loans up to P30,000 (PayMaya) and P125,000 (GCash), just one example of how easy it is to get into debt.

Enough is enough!

First off, not all debt is all bad. If we be borrow to buy a home, take advanced studies or start a business, it’s called good debt. If you can pay the interest on time and use the borrowed funds to earn, debt can work in your favor.

But this doesn’t always happen. Whether medical bills, credit cards, student or car loans, family debt, or even just small-ticket items, somehow these add up.

If you’re inwardly screaming “enough is enough!”, take that as a good sign. Most financial gurus or mentors also endured breakdowns, right before their breakthrough.

Manage your debt. Don’t let it manage you.

Baby steps to debt management can be scary. But to truly fix your finances, we’ve got to leave behind escapist behavior and feel-good distractions that takes our focus out of the problem at hand. With the right mindset and strategies, you can get back into the driver’s seat of your financial situation.

Here are 10 easy and practical steps to help you manage debt and achieve financial freedom:

1. Assess your debt
First, determine just how much debt you owe. Write down EVERTHING. Create a two-column table on paper or a spreadsheet in your computer. On the first column, list all your credit cards, loans and other outstanding balances. On the next column, note the interest rates, minimum payments, and due dates for each debt. Seeing the numbers and dates in black and white will force you to grasp the gravity of the situation. Once you’ve done this, give yourself a deadline to settle all your debts.

2. Next, choose your repayment strategy: Snowball or Avalanche
In the Snowball method, you list down your debts from smallest to largest; pay your smallest debt first while making minimum monthly payments on your other debts. As you finish each debt, use your leftover money to pay off the next smallest, and so forth. Here’s a free online Snowball calculator to give you an idea.

The Snowball method builds your confidence and your “paying” muscles, as you see yourself clear more debts quickly. However, because it considers only the principal (the original amount you borrowed) per debt, you may end up paying longer because of high-interest loans.

This is why some people choose the Avalanche method. List your debts by interest amount, highest interest rate to lowest. Pay off the highest first, and this will lower the interest until you clear out your debt. This could save you a lot in interest charges but may need a bigger commitment upfront. Compute your Avalanche here and decide.

3. Track your income and Expenses
List all your regular income and expenses to understand how much money comes in every month and where it goes. Set aside part of your income to pay your debt, leaving enough for rent, utilities, groceries, and medicine. Based on this consideration, create a budget and stick to it. This is crucial to gaining control over your finances.

4. Add New Income, Reduce Old Expenses
We know, ang dami mo nang racket. But this doesn’t have to mean a second job or work hours. Think about how you can monetize the skills and hobbies you already have: what’s easy for you but not for others? What would it take to turn them into income earning opportunities? Ask yourself this daily and commit to add to your money-making activities.

For expenses, be firm with yourself - needs versus wants. Eat more at home, cancel unused subscriptions, sit out the monthly sales or even uninstall your apps. If you have friends na di mo kayang sabayan ang lifestyle, be honest with them and find another way to meet up and hang out. Remember that every peso you save moves you closer towards freedom from debt.

5. Reach out to your creditors and negotiate
Instead of hiding from the stressful calls, reach out to your creditors. Show them you’re willing to pay, and to work with them on a solution. Many creditors are open to negotiating new payment plans or even lowering rates to help you repay your debt.

6. Consolidate or bundle your debts
Tracking many small loans can be time-consuming. Combine your debts into a single loan with a lower interest rate that’s easier to pay. Options like personal loans or balance transfer credit cards can help. But even low interest can pile up, so always do the math and carefully weigh pros and cons before proceeding.

7. Set up an emergency fund and auto-debit to it
This will save you from having to borrow for unexpected expenses. Save three to six months’ worth of living expenses. Start with any amount, no matter how small (Ainie started with saving five pesos weekly), and gradually build savings. It’s not instant -- it’s a long game that requires discipline. Make it easy on yourself. Commit to a savings goal, then set up auto-debit from your daily account to one that’s not so easy to access.

8. Re-write your money stories
Most of us grew up with family “money stories” programmed into us. These are negative behaviors or attitudes about money -- like “rich people are bad”, or “we have no choice, we’ll always be poor” -- that we may be unaware of but can hold us back. Once you spot these money stories and their effect on you, you can un-learn them and start fresh.

9. Focus on self-mastery
Be honest with others and patient with yourself but stick to your plan. You are the best person to get yourself out of debt.  Managing personal debt is a marathon, not a sprint. Stick to your repayment plan, even when you face setbacks or are tempted to overspend. Celebrate small wins, and always keep your eye on the prize being debt-free.

10. Invest time to be financially aware
Most people who get into “money problems” just weren’t taught the knowledge and skills to manage finances. They didn’t have access to financially savvy mentors growing up. But now there’s no excuse.

To be utang-free takes discipline, perseverance, and a hard reboot of your financial habits. Follow these steps and stay focused, and you can create your own bright financial future.

Did you know?
You can protect your finances with insurance. And here's how:

Getting sick nowadays is truly expensive. Critical illness insurance like FWD BIG 3, Set for Health and Vibrant helps you by paying for expensive medical treatments if you get fall sick with diseases like cancer, heart attacks, or strokes and many more. If you are diagnosed with a covered illness, the insurance gives you a lump sum of money you can use to pay for medical bills, therapy, and even daily expenses if you can’t work. This way, you and your family don’t have to worry about huge medical bills and can focus on getting better.

Life insurance, on the other hand, makes sure your loved ones are financially protected if something happens to you. The money from a life insurance policy can be used to pay off debts like home loans, personal loans, or credit card bills, so your family doesn’t have to deal with these financial burdens. It can also help cover your family’s living expenses, education costs, and other needs, helping them maintain their lifestyle during a tough time. Check out FWD The One for Life for a more affordable life protection plan with option to add critical illness and accidental death coverage and Set for Tomorrow for a more comprehensive coverage.

Investment-Linked Insurance like Manifest and Set for Life can be a long-term tool to build your investment portfolio once you are free of debt. This type of insurance combines life insurance with investment opportunities. This means part of your premium goes towards life insurance, while the rest is invested in various funds. Over time, this can help grow your wealth and provide financial security for the future.

Make insurance a part of your financial tools to build a stable future. Talk to a financial advisor about your options.