7 Simple Personal Debt Management Tips
What do you think about debt? Is it good or bad?
Some people think that debt is bad. Do you think so? I think Yes and No.
- Yes, debt is bad if you're not paying and total payment with interest and penalties are going up.
- No, debt is not bad if you're able to pay and manage all your debts. Another instance of using debt for good is if you use it to earn. For example, you borrow P10,000 then you earn P15,000. Of course, it is still the best not to have debt at all avoiding interest charges and you keep all the profits.
It is important to know how much you owe because if you're not careful in paying, it can spiral out of control and take over your life. You need to stay on top of your debts and practice good debt management. If you do, you're less likely to get into big trouble. If you see a problem, like not being able to pay promptly, taking action quickly can keep the situation from getting worse.
So, how do you keep your debt under control? Here are some things you can do for good debt management:
1. Use credit cards with no or waived annual feesBefore most banks offer credit cards with the annual fee waived for the first year. But now there are banks in the Philippines that offer credit cards with the annual fee waived for life. You can inquire these banks about their credit cards with no annual fee:
- Bank of Philippine Islands
- EastWest bank
- PS Bank
I also know from friends that it is possible to waive the annual fee by making a phone call to the bank. If your account is in good standing, it is likely that your annual fee will be waived. Otherwise, tell the bank that you're cancelling your account and choose one of the banks that offer credit cards with no annual fee.
2. Pay your balance in full each monthIf you pay your credit card balance in full, you avoid paying for interest. If an emergency comes up and you are not able to pay the entire balance, do your best to pay it off quickly -- within two or three months at the most. If you allow your account to have a high balance, it will be more difficult to pay.
3. Avoid high-interest debtIf you're applying for loans, choose those with low-interest rates. If you're a member of SSS or Pag-ibig Fund, these institutions offer low interest rates. Avoid loan sharks, 5-6, pawn shop loans or payday loans because these usually charge high interest rates.
4. Save money for emergenciesDo what you can to save for an emergency fund equal to at least three months' income. In case of job loss or other financial crisis, you have cash to spend for essentials. If you use credit in such situations, you're setting yourself up for more trouble.
5. Save money to buy the things you wantMost "wants" can wait until you have cash to pay for them. Getting the habit of using your credit card to buy non-essentials (unless you pay the balance in full right away) can be very dangerous.
6. Take advantage of 0% interest sales.If you can't pay cash for high-priced items, take advantage of 0% interest sales or offers by banks. It is possible now to buy an item, for example a computer, in 12-24 months installments with zero interest. But take note that you should not default on payment, even once, or you will be charged the interest.
7. Talk to your creditor if you're unable to make a paymentThere are creditors that will allow you to skip a payment with no penalty if you're into a temporary setback and you've been faithful in paying. Don't make it a habit not to pay your dues though, because interest will still accumulate as usual.
It is important to be responsible in managing your debts to be sure that your debts will not overwhelm you. If you follow the 7 simple steps discussed, you can keep your finances under control and manage your debt smartly.