No one wants to stay in debt for the rest of their lives. So here are some steps to take if you want to manage your loans and wipe out your debt:
Make debt servicing part of your budget. From your monthly budget, you can tell what spending you can cut back on to help pay off your loan faster.
You must get creative in lowering expenses, because every little bit of money can get you out of the red sooner. If you’re unable to lower expenses, look for extra means of income or sell off some things you own.
Once you’re organized, add your loan payments as part of your expenses, prioritizing the one with the heaviest interest rate. Once you have paid that off, move on to the next, then to the next, until you are completely free and clear. Each debt you strike out gives you a sense of accomplishment and progress and will spur you on to your final goal of zero liabilities.
Pay debt more often. In fact, pay it twice a month. This may sound strange, but it’s a powerful system you can use to end long-term debts (like mortgages) faster and save yourself a LOT of money. It’s a shame that few actually practice it. For example: If you borrowed P2.5M at 8% interest to buy a house and pay it over a period of 30 years, you’ll wind up with a little over P4.1M in interest payments. However, if you did the bi-weekly system, you would end with only P2.91M in interest payments instead. You save over P1.19M and get your house debt-free a few years ahead of schedule!
Last but not the least, Don’t misuse loans. Pay in cash for wants and luxuries, save up for large expenses, and think very hard before taking a loan or using credit. Debt is negative income; it slows down your capacity to earn. It’s a powerful tool if you use it to buy things that gain value over time, like real estate and education. Otherwise, you’ll just be earning for someone else.