How to Manage Your Debt Effectively


Are you one of those who can’t resist sales from big department stores during payday?

Have you tried convincing yourself that you don’t need a new bag, shoes or the latest cellphone model yet buy them anyway because they’re on sale?

Businesses have made shopping and payment easy and convenient to attract more clients and entice them to spend more.

 You are not alone.

Because companies are making it so easy and convenient to borrow money, most people are finding it hard to say no. Take for example when you scout for a car. Car dealers now offer very low down payments for a brand new car. For as low as P50, 000.00, you can bring home your dream car with a lot of freebies that go with it. Most importantly, you can pay for the balance with a car loan in their easy in-house financing scheme. Easy peasy, right?

Wait, how about that LV bag? It’s on 50% sale! Oh, this dress is so beautiful and it’s 20% off! And those shoes would pair nicely with this dress! Look, it’s buy 1 take 1 for that lipstick! Let me use my credit card. Ka-ching!!!

Before you even know what came over you, you have accumulated enough debts that go beyond your capacity to pay. Then the notice of payments and calls from the bank or credit company started coming in. What to do?

Good Debts and Bad Debts

If you find yourself in this situation, here’s the good news! Not all debts are bad and knowing the difference might just save you from being buried deeper into it. It will also help you plan your purchases in the future. So what is a good and bad debt?

Good debts are debts that have a potential return on your money. Simply put, you get something good out of it.  Educational loans and business loans are examples of this debt. 

Bad debts, on the other hand, include credit card debts and loans that have no potential return on your money. Examples of this debt are buying a new high-end gadget and borrowing money to finance your vacation.

Steps to Manage your Debts

Debt is the worst poverty.

Thomas Fuller

This is the most noteworthy description of debt. Most of us fall into debt and don’t know how to get out of it. Oftentimes, we found ourselves sinking into poverty because of the accumulated loans. Without any means to pay, we consequently resort to borrowing more and more.

If you don’t take action immediately, you may find yourself driven into bankruptcy and losing everything you value. Debt is often the reason why many families fall apart. But there are ways to get out of it. It will take a lot of discipline, self-control, as well as effort and time on your part but perseverance is the only way you can free yourself from debt. Here’s how:

1. Don’t get into more debts to pay off your current debts.

Tighten your belt and don’t spend more than you can make.

2. As much as possible, pay off your credit card debts in full and on time to avoid high interest.

The typical monthly interest rate of 3.5% on credit cards can add up to 42% in a year. Remember, interest rates are compounding. If your income does not increase with your spending, it can drain your money faster than you can earn it.

3. Always pay in cash.

By doing this, you control your spending and monitor your expenses better. Maintain one or two credit cards to be used strictly for emergencies.

4. Change your habit of spending to habit of saving.

Evaluate your lifestyle. Don’t spend your money on luxuries, instead spend it on necessities like food, insurance, and utilities. Priorities, people!

5. Make a list of all your debts and pay them off one at a time.

Pay the debt with a low balance but high interest first to eliminate it.

6. Change your mindset about money.

Stop believing that debt will solve all your money problems. It won’t.

7. Increase your cash flow.

Make use of your talents and skills to earn additional income.

8. Consider using your savings

Consider your savings and non-income generating assets to pay off your high-interest debts. Once you’re done paying, you can start saving again.

9. Use your bonuses to prepay your mortgages.

This will shorten the time that you will have to pay for them and eliminate your debts sooner.

10. Invest time in financial education.

Stop thinking that financial education is only for the wealthy. Most people fail because they lack knowledge of how money works.


 If you are born poor, it’s not your fault. But if you die poor, it’s your fault.

Bill Gates

Finally, you must remember that you are responsible for your future. Nobody can help you unless you help yourself. Debt can become an obstruction and can control your life. If you want to get out of debt, discipline and educate yourself. Learn how to make your money work for you. Many free courses on the internet will teach you how to invest in stocks. Debt is not the solution. Take action and control your debts or debts will control you.

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