Debt consolidation and how it can help you

If a person comes up to you and asks you, “How much debt do you have?” you might get taken aback by how extremely personal this question sounds. Your answer, however, will probably depend on how you interpret or understand the word debt. In its strictest sense, debt or credit is defined as money owed from another person or an institution. It gets more complicated when talking about the technicalities or arrangements for such transactions – but we’ll get to that. If you owe your mother PHP 3,000 because you ran out of money this cut-off, that’s debt. When you borrow money with an interest rate in place, which is additional cost for the privilege of borrowing money, such as when you borrow money from a bank for a car or for a mortgage, that is definitely debt. When you pay your tuition fee quarterly or buy an appliance on an installment basis, your remaining balance can qualify under the category of debt. Even the PHP 50 worth of goods you got from your neighborhood sari-sari store can still be considered as debt. Nearly everyone has debt, and in this day and age, it’s virtually impossible to live debt-free. Simply put, when you can’t pay cash upfront for any purchase or service, you’re accruing debt. What is debt consolidation and why you should consolidate your debt Debt consolidation simply means taking out another loan to combine all your existing debts to pay them off at once. If you’re thinking, “I’m already in debt, and you’re suggesting that I should go deeper?” Well, you’re mistaken. This kind-of new debt is obtained at a lower interest rate so you can simplify your payments. Ideally, you’re not supposed to rack up more debt while you make the payments. If you’re having trouble with your finances because of high interest rates, then consider a debt consolidation loan. Such can be obtained at lower interest rates, and usually, the payment schemes are more manageable and longer – so you can make the payments over a longer period of time. Having a longer loan term means you can buy yourself some extra time to earn the money you need to fully repay the loan. With debt consolidation, you also have the opportunity to “unify” loans so to speak. You don’t have to worry about multiple due dates each month. You eliminate the headache of going to different payment centers or using different payment channels just to make your payments. Managing your debt will be painless insofar as record keeping and organization is concerned. You might think that it’s just another loan, but the thing is, when you’re left without much choice, you’d probably go with the lesser evil. When you take out a debt consolidation loan, you’d probably incur extra fees or late payment charges, but that’s the premium you pay for the opportunity to pay off your existing debt. The key is learning what the costs are when taking out such a loan. You don’t want to risk anything at this point, so you need to read the fine print. Find the total cost you would pay before applying for this type of loan. Do your research and look around for materials that would teach you how you can make the best most out of this type of loan. And as mentioned, you need to keep your debt at the same amount that it is now. When you have limited funds and couldn’t afford anything more than the repayment for your debts, you need to exert every bit of effort to make sure that you will keep it that way, at least until you recover or have a good credit standing. Remember though, that a debt consolidation plan is just a short-term fix. It’s not the cure for your erratic spending habits.

How you’re supposed to handle or manage your debt Even when you only owe a few thousand pesos, you should be able to manage your debt on your own. You have to ensure that you make the payments on time and you won’t spiral into getting buried in it. If you have mountain of debt, you have to put in every little effort needed to repay everything and get yourself out of financial trouble.

• Know exactly how much money you owe.

The first step to handling your debt involves making sure you’re fully aware of your money situation. Create a list of everything you owe down to the little things. Identify who or where you borrowed money from. Find out the actual or total amount of the money you owe. How much should the monthly payments be? When would each payment be due? How much interest is involved? How long will it take for you to pay everything off? If you show yourself a detailed record of everything involving your debt(s), you’ll get a firmer picture of the situation. Keep updating this record so that you wouldn’t forget about it.

• Admit that you need help.

Sometimes, you need to admit that you have money problems. If you’re finding it hard to pay your credit card debts each month and you’re barely making the minimum payments, then maybe it’s time to pause, reflect, and recognize that you’re knee-deep in debt. Like alcoholism, addiction, or any other bad habit, the first step to rehabilitation is the realization that you’re already in bad shape. You need to develop a desire to get out of it.

• Set up a payment calendar.

Like any other action plan, you need to take action! Create a monthly bills payment calendar and determine the amount you need to pay on a specific date. Then, fill in when you’ll receive your salary so you can budget accordingly. If you need to, set up alarms or reminders on your phone so that you won’t miss any payments.

• Decide which debt you want to pay off first.

You need to establish which of your debts you’d like to pay first. We suggest paying off your credit card debt first, simply because the interest rates are higher and the amount you owe would quickly accumulate if you don’t pay everything right away. Rank your debts according to priority. What do you want to get rid off first? You can also pay the debt with the lowest balance – that will be a quick win for you.

• Use a fallback.

When you have outstanding debt, you need something to fall back on. If you need to, use your emergency funds or take out some money from your savings. It’s better to deal with it now – even if you’re left with little – so you don’t have to worry about it later. Another way is to consolidate your debts like we mentioned above. Once you’ve gotten yourself out of the quagmire of debt, you need to make long-term changes towards your lifestyle, your spending habits, and your saving habits. Remember that you don’t want to go back to your old style of holding money. It takes quite a lot of willpower and effort to get yourself sorted financially, and it’s not supposed to happen overnight. There’s no magic pill that you can swallow; you simply can’t wake up debt-free the next day unless you work hard for it. You have options, but you need to be smart about them and exercise some self-control. Blend PH can be your trusted partner when it comes to debt consolidation. Check out our services to find an option that fits your current financial situation.