You probably got into debt because of insufficient income, and now you’re expected to pay that debt with the same low income. How exactly are you supposed to do that?!
The highest minimum wage in the country is currently PHP 446.76 in the Metro. If you’re living alone, you might be able to live on this budget with cash to spare. If you’re the breadwinner for a family of 3 or 4, that might be stretching it. You can’t sell your house or car if your salary doesn’t even allow you to save for one. And the longer you’re indebted, the higher the interest will be, and the harder it will be to pay off.
It might look like a helpless situation now. The trick to this is smart and strategic planning and follow-through of the plan. And we’re here to help!
Refinance your loan
Since you’ll need some time to establish your plan and budget, it would help if you can decrease the interest on your loan. This is something you should do as soon as possible.
Refinancing means another lending company pays off your debt from your previous lending company. In return, you will pay your debt to the new company with its own terms. Choose a new lender that offers a smaller interest on your loan. Even a 1% or 2% less interest will save you money in the long run.
Create a new budget
This new budget will cover only the minimum expenses. The first step to doing this is to first know your current budget. From there, remove anything unnecessary. Don’t worry about a Netflix or Spotify subscription… for now. Remember that when cutting leisure costs. You can get it back when you are debt-free.
There are bills you can’t skimp on:
Rent. If you’re renting, you might wanna consider moving to a cheaper place while repaying a debt. While you would probably need to hire a moving vehicle and pay an advance and deposit rent, it might save you money in the long run. If you’re paying a mortgage and have extra space in your house, install a bed and have someone rent the room or bed space. The extra income can help pay your mortgage. The downside to this is that you don’t have full control of your utility expenses.
Utilities. Unless you’re using it for work, downgrade your internet or data plan. You don’t need 20+mbps if you can’t pay debts because of it. Save money on electricity by regularly maintaining your appliances and monitoring your meter reading. Avoid paying excess water fees by repairing pipe leaks and using our trusty tabo for showers.
Groceries. This is where you can maximize your creativity. in the budget. Create healthy meal plans ahead of time and try to buy all you need in one trip to the store. This avoids you from buying tingi-tingi in a sari-sari store and spending more in the long run. At least cook rice that will last for an entire day to save on LPG or electricity cost, depending on your stove. Support your local market by buying goods there. Meat and vegetables are generally cheaper there anyway.
Every little cut can help. The goal is to have spare cash to pay your debt/s. If needed, make a spreadsheet for budgeting and tracking expenses. Make sure to walk the talk and stick to your planned budget. Motivate yourself to stay on track with thoughts of being finally debt-free!
Increase your income
Now that you’ve seen your new budget and projected how much you’ll save with it, is it enough? Sure, you can spare a few cash here and there from your new budget alone, but how long will it take you to repay your debts? A year?
So, our new goal now is to be debt-free as soon as humanly possible. To get there, you should be willing to hustle for the next few months. This means taking on more work or working long hours in the office. You can also start a little side hustle, like making delicacies that you can sell in the office or your kids can sell at school. You can enter the freelance work and sell digital art or online content if you have the knack for it. If you have random possessions that you haven’t used for a while, you can sell them in a garage sale or online to friends.
After you’re finally debt-free, the thrifting and the hustling shouldn’t end abruptly. Instead, just make it less strict. Your new goal is to establish an emergency fund to not be caught up in debt again. Ideally, your emergency fund should have at least 6 months’ worth of living expenses. This assures you that in case a crisis happens again, debt is not the first thing you look to.
Cutting expenses and increasing your income is the best combination to pay off your debts more quickly. However, know that there’s only so much that you can do, and even if you’re already doing it all right, it might still take some time to free yourself from debt. And that’s okay. Be kinder to yourself and make sure to slip in a few treats for yourself now and then.