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7 steps to set yourself free from debt

Aneth Ng-Lim

<p>A lending app that sent funeral wreaths and caskets to its borrowers made news headlines over the weekend. Readers expressed anger over this harassment, and a lawyer shared his opinion on the legal actions that the borrowers can take against the lending app.</p><ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/business/06/09/23/lending-app-that-sent-caskets-to-debtors-may-be-sued">&#x27;Lending app that sent caskets to debtors may be sued&#x27;</a></li></ul><p>Sadly, this is not an isolated case. Borrowers who are unable to pay their debt have suffered many kinds of harassment from their debtors including frequent calls at all times of the day and night, threatening text messages, even personal visits at their workplace or residence.</p><p>While there are now laws and regulations that mandate fair debt collection, few are aware of them or able to ask for help from regulators because they choose to hide from their creditors instead. If you want your debt problems to go away, running from your debtors is not the answer.</p><p>Debt can be suffocating and will cost you not only money but also drain you mentally and even suffer physically with stress. If you want to tackle your money problem, come out of the trap you are in, and free yourself from debt, here are tips to get you started.</p><div><strong>#1 Stop borrowing</strong></div><p>Today’s technology has made borrowing so much easier. Years ago, to be able to borrow money, you have to go to a bank or a lending company, fill out forms, and wait several days or even weeks for approval or rejection. These days, you can get a loan with just a few taps on your phone, and you can it do it any day of the week, 24 hours a day. This “convenient” access, plus the aggressive marketing tactics have lured people into debt, even those who do not really need it. </p><p>If you find yourself easily tempted, opt out of these marketing messages and stop taking the calls as well. Yes, it would be nice to get extra cash but just remember the interest you will be paying, and the penalties for missed payments. If you are already paying down several debts, all the more reason to just say no.</p><div><strong>#2 Pay down your credit card debt</strong></div><p>If you are only paying only the minimum due on your credit card, try to do two things right away: one is to stop using the credit card; and two: start paying down your full balance.</p><p>The reason for number one is that credit card interest is calculated based on your average daily balance. If you are paying only the minimum due, and continue to use your credit card for expenses, you will keep paying interest and your balance will likely keep growing or at least not shrink. </p><p>The reason for number two is that credit card companies also have what they call a hierarchy of payments, and they follow this for payments you make. They prioritize paying your interest and fees, and only what’s left after that will go to the principal or actual charges. So if you want your full balance to become smaller, you need to pay more and stop using your credit card or at least use it less.</p><div><strong>#3 Own more than one credit card? Pay off the more “expensive” one</strong></div><p>If you have more than one credit card and owe balances on all of them, start with the one that is costing you more. You need to know which one charges higher interest, and which one has a higher balance. You could also try and apply for your credit card’s amnesty program, where you can promise to pay off the balance in 12 or 24 months but negotiate for lower interest, or even no interest.</p><p>I suggest this trick of visualizing interest as blood. You bleed each time you pay interest, and it’s time to stop the bleeding by paying off the principal amounts. </p><div><strong>#4 Shop for lower interest options</strong></div><p>If your credit card issuer turns down your request for a payment program, ask around and be ready to transfer your balance to another bank or credit card. It’s a competitive industry, and you will likely find one or two options where you can save on interest rate. Check also for any penalties and read the fine print so you don’t actually end up going from a bad deal to a worse one.</p><p>When you decide to transfer your credit card balance to another company, remember not to use the new credit card until you have paid off your debt. Otherwise, the vicious cycle of interest payments on average daily balance will start over, and you may find yourself in a worse situation.</p><div><strong>#5 Start paying with cash</strong></div><p>While you are paying down your credit card/s, switch to cash. You can use physical cash or electronic cash, but paying with cash always hurts because you feel the loss right away. If you have a spending problem, paying with cash may help you manage it, versus swiping with a credit card and postponing your worries until your next statement arrives.</p><p>You might think you will miss out on rewards points or offers by paying with cash, but trust me – whatever rewards you earn will most likely be less than the interest you will pay. Banks and lending companies have already done the math, and they will not launch any program that will result in their loss.</p><div><strong>#6 Reconsider your savings and investments, if any</strong></div><p>If you have savings or investments and are not touching them because you want access to emergency cash, you may want to review your returns. Savings accounts generally pay less than 1% interest annually, versus the 3% monthly add-on interest you are paying for your credit card. Meanwhile, conservative investments generally target returns of 3% to 6%.</p><p>Unless your savings and investments are delivering returns higher than your credit card interest payments, you may want to use some of them to help pay off your balances.</p><div><strong>#7 Ask family and friends for help</strong></div><p>I’m not saying you borrow money from family and friends to pay off your debt. You can, but you may be starting a new problem that way if you are not disciplined with payments. But paying off debts needs support, and it is good to have it from people around you. This way, they will understand when you do not go out for meals, say no to spa visits, or cannot take overseas trips. </p><p>Sometimes this also means sending a signal to family and friends not to approach you for money. Every little bit helps in this uphill battle to claim your freedom from debt and reach financial independence.</p><ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/blogs/business/09/13/21/buried-in-credit-card-debt-youre-not-alone">Buried in credit card debt? You’re not alone</a></li>	<li><a href="https://news.abs-cbn.com/business/02/09/23/33-unregistered-lending-apps-removed-by-google-sec">SEC says 33 unregistered online lending apps removed from Google play store</a></li></ul><p>RELATED VIDEO</p><figure class="op-interactive"><iframe height="315" src="https://www.youtube.com/embed/Ykoc0vUQw9Y?enablejsapi=1" width="560"></iframe></figure><div class="iwantbar">Watch more News on <a href="https://www.iwanttfc.com/#!/browse/Genres/News/tag_id_genres/id_news" target="_blank">iWantTFC</a></div>

If you want to tackle your money problem, come out of the trap you are in, and free yourself from debt, here are tips to get you started.