I know it’s almost the norm today for everybody to have debts. Now, what is debt? Debt is any money you owe anyone for anything. It maybe in the form of money, favor, or gratitude. In the Philippines, many companies, banks and financial institutions make it so easy and convenient for people to borrow money. So why bother to be debt free? Well, it’s because I believe it’s better to live a debt-free life. Why?
For me, there are six (6) worthy reasons for wanting to be debt free.
- I want to own 100% of my income and assets. Come to think of it. When you have debts, you don’t really own 100% of your income and assets. Everyone to whom you are indebted with will have a certain percentage share of your income. Maybe it’s 20% or 30% of your income that goes to your debtor. So if you work the whole week from Mondays to Fridays, it’s very likely that you’d only be able to get your income for Mondays to Wednesdays and the Thursdays and Fridays will most probably go to the person to whom you owe some money. Now if you’re unable to pay your debtors, they’d probably get some of your assets or things you own that they think have some value.
- Debts are crazy stupid expensive. Always remember and never forget that all debts come with interest that needs to be paid and that interest is a passive income for your debtor but not for you. Isn’t that stupid? Isn’t that crazy? Yes, if there’s what we call passive income, there’s also passive expense. Surely, we don’t want to have something working against us especially while we sleep at night.
- Debt is the exact opposite of wealth. To get our net worth, we simply deduct our liabilities from our assets. And our debts form part of our liabilities. To know about our cash flow, we also get our income and deduct from it our expenses. And our debts incur us interest expense. Interest expense is really just the opposite of interest income so that what we have here is money working against us which is not what we want.So clearly, instead of growing our wealth, we are doing the exact opposite thing which I’m sure no one of us likes this.
- Debt is a disease. For any person, debt is like an illness that never goes away. It persists and never truly gets better until an action is taken. Just like having a disease or an illness, debt can cause you great suffering and pain especially when you now have trouble paying your bills and meeting your obligations in time.
- I want to Own 100% of my choices in life. Having debts would surely greatly affect your decisions in life. Just imagine if you have a home loan, car loan and credit card debts that takes 50% of your salary every month. Do you think you can leave the job you have now that makes you feel so stressed and miserable everyday? I don’t think so. But imagine if you don’t owe anything to anybody, do you think you can just go and leave your miserable job anytime? You bet. When you’re debt free, you certainly have full control of your life. It makes a lot easier to choose what you really want in life. Indeed, a lot of things get easier in life when you don’t have debts.
- I want to increase my financial security. Debt is a serious threat to your financial security and it keeps you from making the most of your money. What you spend on paying for your debts could have been saved for your emergency fund, long term health care, retirement fund and for your kids’ college education fund. Once you’re debt free, you can easily work your way towards becoming financially secure.
Now maybe you’re asking yourself this: When is debt okay? For me the answer is this: Only when it is a matter of life and death situation. When somebody in your family gets sick and you don’t have anymore medical or emergency fund left or that you’ve already exhausted all means of converting into cash all your available assets, then it’s okay to get a loan. After all, a human life is more precious than any other thing we possess.
You maybe asking also these questions: How about a home loan? How about a car loan? How about a business loan? My answer is this. Everyone gets these loans, right? Nope! You can live life debt free. According to a study made on the lives of millionaires, most bought second-hand cars. Most millionaires rented their apartments until they could afford to buy their own house in cash. Most millionaires have boot strapped business start-ups. As you can see, you don’t need to follow ‘everyone else’ out there.
Nowadays, it is actually our responsibility to raise the bar. Why? Bacause banks have lowered their standards. Banks want you to be buried in debt. You may have noticed that it’s getting easier and easier to get loans and credit cards approved these days. However, if you want to achieve your goals in life, I suggest you save up for it. Instead of being manipulated by the banks and credit cards to go for a loan and have what you want instantly, try practicing discipline and patience. That’s what adults should really do.
If we’re already in debt, how do we get out of it? Well, here’s the method I suggest that you do.
Step 1. Face the truth. I know that for most of us we’re in denial when it comes to our debt. But it really would be much easier to solve the problem if we can admit it to ourselves and face the hard truth. It’s best when you deal with the root of your problem – the attitudes and bad habits that led to indebtedness. When we’re able to face the hard truth, then we’ll be able to make the right decision on how best to solve and face the challenge we now have on hand. We may then start making a list of everything we owe – credit cards, personal loans, car loans, home loan, business loan, cash advance, paluwagan, 5-6, pawnshop, friends and family. It’s easy to forget all these especially when there are already so many.
Step 2. Decide you want to get out of debt. You must really come to a day when you have to decide you will get out of debt. Before that day comes, you may ask yourself these questions: Are you disgusted with your situation? Are you having nightmares over your debts? Can you still walk tall with your head held high? Are you afraid of going out knowing you might bump into your creditor or debtor? If you are sick and tired of your lifestyle, then it’s time for you to say “Enough is enough. It’s time to be debt-free.”
Step 3. Determine priority of payment. To do this, you have to follow these rules:
Rule 1. Protect your 4 walls. Your 4 walls are food, shelter, clothing and transportation. You need not deprive yourself of these things since these are your basic necessities for survival. But everything beyond these 4 walls, you can let go.
Rule 2. List your debts from easiest to hardest. You may go with your gut here in determining which one is the easiest for you and then start from there. There’s no need to bother here with regards to the interest rate because what you’ll need here is just to get started. Of couse, it will vary from person to person but in most cases, the smallest loan is usually the easiest to get started with.
Step 4. Let the momentum work for you. This simply means that when you are done paying with the smallest or easiest loan, you simply use the “freed-up cash” to work on the next bigger loan. So for example, you have a credit card loan of Php150,00.00 and you pay this Php5,000.00 a month, once you have paid all of it, you add the Php5,000.00 freed-up cash to pay your car loan of say Php300,000.00 that you pay Php10,000 a month. So now, instead of just paying Php10,000.00 for your car loan, you now pay Php15,000.00 (Php10,000.00 + Php5,000.00). When you are done paying for the car loan, you then use the Php15,000.00 freed-up cash to pay now for your home loan of Php1,500,000.00 that you pay P15,000.00 a month. Here, instead of paying again just Php15,000.00 which is your monthly amortization for your home, you’re now going to add the Php15,000.00 freed-up cash (Php5,000.00 from the credit card + Php10,000.00 from the car loan) enabling you to make your home loan payments to Php30,000.00 already.
As you can see, by letting momentum work for you, it will become faster for you to be out of debt and be able to regain your income at the same time.
As a clarification here, depending on the loan type and the institution, the conditions for advance payment application may differ. For credit cards, you may be able to pay it off anytime. For credit institutions, you may need to call their customer support and ask for their billing first. And as for home loans, you may ask for re-computation.
What really matters is that you don’t have to over think this and instead just get started and deal with the specific loan at hand as you go on.
Step 5. Unlock the five (5) gates to debt Freedom. For you to become debt free, you only need to unlock these four gates:
a) Live below your means. The thing that you might want to take a look at here is your lifetyle. Chances are, you’re living way beyond your means which is why you have so much debt now. It might be a good thing to know how much you receive as income or salary and how much you’re spending every month. This way you can do a sensible budgeting of your money and avoid incurring more debts. I know it may be hard, but you have to find a way you can decrease your expenses. A simple way you can do this is to make a list of your everyday expenses and see which one is a need or just a want. More often than not, you can see here where you can decrease your expenses. It does makes sense to look at the ways you’re spending on a daily basis and you might want to evaluate this. See if they are really worth it and come up with ways you can minimize it or totally drop it.
b) Let go of under performing assets or liabilities. It might pay to take stock of your belongings. Why not empty your savings account? It might be better to empty your savings account to pay off your debts than to keep your savings and earn much less compared to what you would pay in additional interest expense. This is actually the best form of investment. Should your savings be not enough, you might want to look at what you have and start liquidating some of your assets. Most of the time, we have so many stuffs accumulated over the years that we don’t have much use of or we just don’t need it. Being in debt makes you actually realize that you can not afford most of the things you have. Why not sell those stuff instead and use it to fund your debt payment scheme. Just be grateful for whatever you have and let it go. Remember, every centavo counts.
c) Increase your cash flow If you really want to eliminate your debt faster, it may be better if you can find ways not just to decrease your expenses but to augment your current income with a side or part-time job you can do on your days off from your regular job. Find something you’ll enjoy doing either offline or online. This way, you’ll have some extra cash you can use to pay off your debt. You might want to take a look at the business opportunity we have in IMG. There’s really a whole new world you can explore and experience in IMG (International Marketing Group) which I’m sure will dramatically help your journey towards financial freedom much faster and enjoyable.
d) Raise ‘Trust-Love Capital’. This is essentially asking help from your family and friends to raise money you can use without interest. It’s important that you be upfront and sincere when you lay down your plan on how you’re going to tackle and eliminate your debt.
e) Use cash or debit cards only. One way to remove the temptation of overspending and getting into debt is to use only your available cash on hand or your debit card which has your budget for the week or the period you intend to use it. Give yourself an allowance that minimizes the amount you will have to spend but allows you enough cash for any necessary expenses. Give yourself some extra money as emergency fund of maybe Php150.00 to Php300.00 which you can spend for unforeseen necessities like having a big hole in your pantyhose in the middle of the workday
As a caution here, there are usually five (5) mistakes that you need to avoid if you want your life to be debt free:
I think getting out of debt may be one of the hardest things to do. It surely takes a lot of time and effort. But I must say you must persevere. You see, you can never be free until you are debt free. So can you do this? Of course, you can do this. I’m rooting for you. It’s time to get full control of your finances and your life. You’re going to be proud of who you become in the process of becoming debt free. So go ahead and start your journey to a debt free life.
Do you want to get free coaching on how to manage your finances and achieve your financial goals? Start your fourney to a debt free future today. Take your first steps by clicking here: https://bit.ly/getlifedebtfree