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  • Baon sa Utang? 7 Ways to Pay It Off So You Can Finally Stop Hiding From Creditors

    There will be a lot of pain before you can also see the light at the end of the tunnel with debt.
    by Aneth Ng-Lim .
Baon sa Utang? 7 Ways to Pay It Off So You Can Finally Stop Hiding From Creditors
To read this story in Tagalog, click here.
  • It all started with saying yes to one installment plan. After five years of working, Rina* felt it was time to treat herself to a designer bag. Everyone in the office seemed to own at least one, and she was tired of toting around her department store-bought bag.

    She justified the five figure-expense (yes, there were four zeroes after the first cardinal number) thinking she was getting the item at 30% discount and can pay for it in 12 months at 0% interest.

    What Rina did not know then was that she would be tempted to buy a second bag just a few months later at another sale. Then, out of nowhere, she got hit with a family crisis that would make a significant dent on their household budget, even causing them to apply for a loan. In a matter of weeks, she was sinking into debt with no hope in sight.

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    “I couldn’t sleep at night worrying all the time how to pay off my credit card.  They started calling the house, then the office when I missed payments. Nagtatago talaga ako (I hid from my creditors). My husband did not know that the bags were that expensive and when I tried to sell them online, I saw I would only be able to recover half the price, not even enough for the interest and penalties,” Rina painfully recalled.

    She had to put up with knowing looks around the office, whispers in the pantry, and her work suffered. She eventually decided to call her credit card company for loan restructuring, and it took her three years to pay off her balance. 


    “Tatlong taon akong hindi nag-credit card (For three years, I did not use my credit card). Even now, I think twice before I use it and prefer to settle payments in cash so I can better track my spending. I now know the zero interest installment is just a hook. The minute you miss a payment, you will be charged with shocking interest rates and penalties. I always pray sana natuto na ako (I learned) from that experience.”

    On hindsight, Rina confessed she would still buy a designer bag but not at a price range 10 times the cost of her old bag. And definitely, no buying a second one until she has paid off the first.

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    Sadly, Rina’s situation is not unique. In the latest financial inclusion survey of the Bangko Sentral ng Pilipinas, six in every 10 Filipino adults borrow money. Five of them would approach family and friends, and only one would go to a formal financial institution.

    There is nothing wrong with borrowing money if you can pay for it, but in the same survey, 22% of Filipinos have outstanding loans or unpaid debts. What makes this worse is that only 2.6% of them borrowed from a bank, and 38.9% got their loans from informal sources. Now, if these informal sources are family and friends who lend money with little or no interest, that’s not too bad. But if the loan came from money lenders that charge usurious rates, that’s nearly 40% of Filipinos at risk of or already drowning in debt.

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    It does not have to be a designer bag that will cause one to spiral into a loan downfall. It could be a hospital bill, tuition payments, car repairs, or home construction. Whenever we borrow money and do not have a budget to tell us how much is our income and how much we can spend until the loan is paid off, that’s one red flag.

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    How to turn your "drowning in debt" situation around

    If you are paying off debt right now, but it seems the balance stays the same or even growing, consider these seven strategies to turn your situation around. It will not be easy. There will be a lot of pain before you can also see the light at the end of the tunnel. You will need to be disciplined, aggressive and blind to all things on sale for the foreseeable future.

    Stop using credit cards

    If you are in debt, chances are you own at least one credit card and using the plastic currency to pay for basic necessities. Stop it right now. You are likely carrying a balance on that credit card, which means every time you use it, you are paying around 3.5% monthly add-on interest on your purchase. Keep all credit cards in a locked cabinet until you have paid off all revolving balance.

    List down all your debts

    You probably know who you owe and what you owe, but when you see it all in black and white and tally the amounts, you will realize just how big (or manageable) your problem is. There should be at least four columns in your list – the first column is who you owe (say a credit card company), how much you owe (current outstanding balance), interest rate (if you don’t know make sure you find out asap), and how much was your last payment.  The fourth column will give you an idea of how quickly you can pay it off, or how much longer you have to go.

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    Call (don’t hide from) your creditors

    If you have family and friends in the list, call them first. Be honest about your situation and commit to them when they can be paid. Is it a year from now, or when you get your next office bonus? They are more likely to give you room to breathe than your other creditors. Then call banks or credit card companies and negotiate for loan restructuring and a better interest rate (for you). All creditors want to be paid so they will at least listen. Be aggressive in asking for concessions. Don’t take no for an answer. Finally, plead with informal sources for a credit holiday — although chances are they will not agree. Try anyway and be ready with dates and amounts you can commit to, as that will help your case.

    Prioritize payments

    If you are in debt, it means your cash flow is limited so don’t expect to pay off everything at once. Most money gurus will tell you to settle the debt with the highest interest rate, but financial expert Dave Ramsey suggests a "Debt Snowball Plan" where you pay off the smallest debt first to create positive momentum. It may be more for the psychological reward than anything else, but Ramsey’s plan has many happy followers judging from testimonials on his website.

    Sell stuff you want but don’t need

    Most yard sales fail to raise a lot of cash because the sellers only put out the stuff even they don’t want. If you are seriously trying to raise cash to pay off debt, be ruthless as you sweep your whole house for items you can live without.  Maybe you got five oven toasters when you got married? Or you have an electric fan for every room? More jackets than days in a week? Turn these into cash to buy yourself breathing room.

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    Stay away from temptation

    Do you usually eat out on weekends? Shop during your lunch hour? You need to declare a vacation from all shopping centers. Remove all marketing distractions too. Maybe you are subscribed to local mailing lists? Unsubscribe right away. Mute social media accounts that tempt you to spend instead of saving. Borrowers who start out committed to a debt-free program backslide from visits to malls and targeted email offers that allow them to buy with one click.

    Carry your debt wish list everywhere

    If you are attached to your mobile phone 24x7, try to look for an App that will allow you to track all your debt, due dates, and payments.  When you have a visual record handy, it is easier to stay with the debt-free program and more importantly, celebrate positive milestones along the way, like each time you pay off a debt.  Some even add a Reward column to each debt – a chocolate cake when paid off, or an ice cream sundae to share with a friend.

    Rina may have paid her debt in three years, but she did not think she would make it at least five times during that period. “Kasi akala mo (You think) you can always set aside this amount and then there’s a party where your daughter needs a new dress or a book she needs in school. Talagang tiis lang (You need to suffer through) and a lot of prayers. I kept reminding myself matatapos rin ito at hindi na talaga ako uulit (it will end, and I won’t do it again).  


    Yes, it can be overwhelming to overcome what may seem to be a mountain of debt weighing you down. But every journey starts with a single step. Yours just happens to begin with one payment.

    Aneth Ng-Lim began her career as a writer and happily returns to her journalism roots after working as a communications specialist in the government and the private sectors. While working for a bank as a consumer education head, she honed personal finance skills and increased her money smarts. A woman empowerment champion, she is a proud mom to two teenage daughters.

    * Name withheld upon request

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