Solutions for your Debt

I posted Causes for Heavy Debt, now I'm going to post a dog eating a cat.

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"Helps me human!"

Oh, and solutions for your debt.

1) Create your Budget and STRICTLY follow it - "Well, duh. This is so freaking obvious." It might be but some people still lack the sense that seems common to you, imaginary-character-that-I-just-made-up-in-my-head. Don't go all spending your money the moment your pay day comes. Manage your money first so you won't have any problems in the future. If you don't, there's a high chance you will borrow money from a friend or get a loan because of lack of management. May I suggest having a jar system.

2) Simplify Your Lifestyle - spend below your needs. If you can't save some money anymore, try eliminating those expenses that are considered wants. Yes, daily visitations to J. Co. or Starbucks is wants. If you have needs that affect your savings, better find a cheaper alternative. You can survive without buying a sack of Ganador rice. 

3) Pay Off High Interest Rates - if you have multiple loans and debts, I suggest you pay off the ones that take a high interest charge like credit card debt. The reason is because high interest debts (or any interests for that matter) compound over time which reallllllllllllyyyyyy is a pain in the butt if it increases.

4) Don't Pay the Minimum - Speaking of credit card debt (or any other debt with interest for that matter,) don't pay the minimum, pay as high as you can. You're just going to prolong your debt if you don't which, again, compounds. This avoids the compounding interest that is working against you.

5) Stop Bringing Big Cash - imagine yourself walking in SM and you have Php 10,000 fresh from your ATM. You saw something that catches your eyes and you have the tendency to buy that thing. You will start reasoning with yourself that "it's okay I can earn the money again." So you bought it. Then, you came across your favorite restaurant. That little voice in your head then tells you to "go eat, you have lots of cash anyway." What you are not realizing is that you just disrupted your budget (if you have a budget) and bought things that you didn't plan to buy. If you have a small amount of money in your pocket, you would think twice in buying stuff.

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Causes of Heavy Debt

A lot of people don't realize these symptoms that can cause heavy debt. Sometimes, they do realize it but they just don't know any other way for their finances. Let's check if you have some of the dreaded symptoms of Heavy Debtitis.

1) Spend More than They Earn - a lot of people have the lifestyle of the rich but the salary of the poor. Too much nightlife,

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Not pictured: Social Interaction

eating out all the time, money for their sugar daddy/mommy, and going on a trip without a definite budget are just a number of the many reasons why people fall into heavy debt.

2) No Emergency Fund - I have already talked about emergency fund before here and here so I won't elaborate further more. What I will elaborate is how people fall into the debt trap without this fund.

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It's also a good trap for bears

When emergencies happen, most people's solution is getting a loan, and this is an emergency so it's not really something you have prepared. So, of course, your budget gets disrupted (IF you have a budget to begin with).

3) Instant Gratification - you know that feeling after you got your paycheck for the month and you decide to buy something, like a camera, smartphone, or lots and lots of chocolate as a reward for your hard work and you forgot (or not even thinking) that you have a problem to face in the future like healthcare when you're old, or tuition for the kids in college, or a retirement fund. Yeah, this is what I mean.

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Can't really blame you on the chocolate part

4) In Search for Recognition and Fame - you know that friend whose always buying new stuff like that new laptop he/she always brings, five smartphones which he/she just only uses one, that expensive iPad that has all the not free apps (also including the blender app for his/her milk shake),

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It's for bringing all the boys in the yard.

always going out of town even if he/she has no money, buys everyone food, throws a party every week just so he/she could feel important in the crowd. Everyone drools at this guy/gal. He/She looks well off. What you're not seeing is the underlying horrible debt that they're facing.

5) Compounding Interest is Working Against You - let me give you a brief definition of compounding interest first (I don't want to mash you with a lot of jargon). Compounding interest is the interest added to the principal of a deposit, investment or loan so that the added interest also earns interest from then on. If you invest this will work WITH you. If, however, you will get a loan, not pay your credit card debt for a long time, then Compounding Interest is your ENEMY! I'll show you an illustration using the power of 72 invented by my dear old friend Albert Einstein which determines the year your money doubles (if working with you) or divides into half (if working against you).

The power of 72 

The Power = 72

The example interest rate per annum = 60%

Your sample money = Php 100,000

72 / 60  = 1.2 years is when your money becomes half

so Php 100,000 after 1.2 year = Php 50,000

Php 50,000 after another 1.2 year = Php 25,000

Another 1.2 year and you would probably give your money a eulogy.

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"I remembered the days when my money was 100,000, but debt took his life."

6) Believe Debt is the ONLY Solution - this is a problem with a lot people who aren't financially educated. Can't buy food for your family? Solution: UTANG! Son was hospitalized because of an accident? Solution: UTANG! Can't pay children's college tuition fee because of unpreparedness? Solution: UTANG! Electric Bills are overdue? Solution: UTANG! And then the heavy debts bury you 6 feet below the ground.

If you have these problems, I suggest you consult yourself first (no, not a financial adviser). I believe that the best financial adviser is YOU. Evaluate yourself first and avoid these problems.  I'll post Solutions in another post.

Post was inspired by Series 7 of Wealth Academy's Debt Management. A seminar for mindsetting people to avoid debt and solving debt.

Want to attend the seminar? Know first about the company here and my realizations here after I attended the first seminar.

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