Getting Out of Debt

Someone once said that, "Spending money you haven't
earned yet is like using up years you haven't lived
yet."
Ever had a problem with debt? If you live in a
consumerist society like ours, chances are you've had
a few in your lifetime. There are many reasons why
people get into debt. They live below their means, buy
things without having the cash to back it up, or get
into money-based arrangements that they can't handle,
like co-signing for a person with a tendency for bad
credit.
The attack of the Credit Cards
One of the most common and debt-inducing sources is
the credit card. Misuse of credit cards give people
the false assurance that they can buy anything they
want without the cash to supply their purchases. Wrong
use of credit can be addictive, especially after
having the short-term pleasure of gaining material
goods that the card user previously couldn't afford.
Now, on top of paying for the outstanding balance, the
card user now has to pay interest charges too,
especially when he or she can't pay the total balance
of the purchases on or before the due date it should
be paid.
Rina, 31, marketing head of a chain of health clinics,
was a frequent card user. Her outstanding balance
typically ran up to as much as P50, 000 at a given
time. Often she ended up just paying off the interest,
without making so much as a dent in her debt. Though
she was making a high, 5-figure salary, she had 0
savings in her account and was always short on
positive cash flow. She admits, however, that she
continues to sustain a high-cost lifestyle.
On the other hand, Jenny, 26, a government employee,
owned a credit card, which she rarely used. She ended
up falling into debt when her boyfriend asked to
borrow from her credit card. The relationship soon
ended, and Jenny found herself being hounded by the
credit card company and having a hard time getting her
ex-boyfriend to pay her back.
Having debt means your money's not yours
This only shows that there are a million ways to incur
debt whether directly or indirectly. However you see
it, the point is, debt is a form of bondage and one of
the topmost reasons that prevent people from achieving
financial growth and stability. Debt is a major
hindrance to making wise investments, and it puts you
in a position where having debt means every centavo
you make does not belong to you, but to the person you
owe money to.
Deborah, 27, was in debt for three years before she
was able to pay off her creditors. During that time,
she was on and off jobs, and accumulated around P20,
000 in debt, which she retained, from borrowing money
from family and friends, and investing what little
money she already had in a failed business. Even
though she occasionally chanced on good paying
projects, she did not use the money to pay off her
debt, and eventually failed to save any money at all.
Finally, she landed a high-paying job that gave her
enough cash to pay people off. Before investing in
anything for herself, she prioritized getting rid of
her debt first. Thereafter, saving money was fast and
easy for her.
Though borrowing money can sometimes offer instant
gratification or instant relief for emergencies, it is
also accompanied by headache, loss of one's peace of
mind, ruined relationships and years of living in a
hand-to-mouth existence, with every centavo you earn
going to credit card interests or the pockets of
people whom you owe money.
Five steps to debt reduction and financial freedom
Staying in debt is definitely not an option, if you
are climbing the path towards financial freedom. There
are several steps to take to rid you of this scourge.
Check out the tips below:
1. Have a healthy attitude about money. Before you can
get free of debt and build on savings, you need to
strike at the root of your problem - the way you
perceive money. Analyze your attitude: do you feel the
need to immediately spend each paycheque you receive?
What are the things you usually spend on? Do you have
short or long term goals about your financial
situation? Answer these questions honestly; they may
reveal things about you that you never knew about
yourself.
2. Follow priorities. The first and most basic step in
achieving financial freedom is to get rid of debt.
This means that you need to realize that until you are
debt free, the money that you have right now does not
belong to you.
As much as possible don't go around buying that new
pair of jeans that you've always wanted or a new cell
phone unit when you owe several people various sums of
money. Pour your focus and what money you have in
paying off your creditors. Prolonging the debt is just
one way of prolonging the agony, and most of all, the
interests being incurred.
3. Plan your expenses. Normally, after getting rid of
debt, it's important to set up a 1-2 months
(short-term) savings for your usual expenses, and then
a 3-5 months (mid-term) savings for emergencies, in
the bank. After that you can start saving up for long
terms expenses such as buying a new car, a house,
education or insurance. After setting those things in
place, then you can consider making (intelligent)
investments in high-risk areas such as stocks, or a
start-up business. Following this order of priorities
ensures that you don't need to fall into debt all over
again.
4. Live below your means. "A fool and his money are
soon parted." Don't splurge when you get your first
paycheque, and have a short-term expense plan in mind
before some cash falls into your palms. Segregate your
cash into envelopes that are intended for specific
purposes, and don't cheat.
Try to come up with a list of cost-cutting measures
and options, and employ them. Can you cut down on taxi
fare? Bringing lunch from home instead of eating out
will help you save a few hundred, or even thousands of
pesos in the long run. Do you really need to go to
Boracay in the middle of June? Forego those happy
trips with your friends. Sacrificing the moment can
mean the difference of having a few thousand pesos off
your debt.
Designate the frequency or schedule of times when you
will allow yourself to shop for new clothes and other
non-urgent items. Make a list of must-haves, or things
you believe you really need to save for (dentist
appointment, a new set of contact lenses, a palm pilot
to help you with your work, etc.). Having a list will
encourage you to avoid wasting your money on trivial
and frivolous things, which are a worse scourge than
putting your money on serious investments that really
matter.

5. Use credit wisely. If there is absolutely no way
you can avoid incurring debt, use your credit card
wisely and pay your debts promptly to avoid incurring
charges, or getting into bad with your family or
friends. When using plastic, make purchases only if
and when you know you have the means to pay for this
in cash before the due date arrives.
Consider transferring higher interest debt to a lower
interest card by taking advantage of promotional
offers many banks use to entice you to their line of
credit. Do the math and see whether you can save a few
pesos by making smart moves to reduce your debt.
The sooner you start making a serious effort at
getting rid of debt, the sooner you'll find that your
money stays in your pocket a lot longer.