Debt Consolidation: How Can I Get Out of Debt Safely?

If you have experienced borrowing money for financial emergencies, you are well aware of how repaying them can be fairly challenging. Contrary to what many people may believe, even rich people have debts, not only poor and middle-class individuals resort to borrowing money to fund expenses or large purchases such as a car or a dream house and lot in the Philippines, which are considered good debts.

To present yourself as a responsible borrower, it is indispensable that you know how to handle your debts, especially if you have more than one type of debt. As such, this is where debt consolidation comes into the equation. In this blog, we'll discuss how you can get out of debt safely through debt consolidation loans and other repayment strategies.

What is Debt Consolidation in the Philippines?

Debt consolidation is one great method to pay off all your debts. Essentially, debt consolidation means availing of a new loan or new credit card in order to pay off all your other loan obligations and credit card debts. It combines all your multiple debts into a single loan.

Pros of Debt Consolidations

If you're opting to avail of a debt consolidation loan, here are the benefits and advantages:

Potentially lower interest rates

Many people opt for a debt consolidation loan because it can potentially lower interest rates. If paid individually instead of all at once in a single and larger loan, it may incur higher interest rates and become more difficult to pay off.

It will organize your debts

If you feel mentally overwhelmed by having multiple debts at once, organizing them into a larger but single debt may help ease your financial worries. Well, it does not necessarily mean your debts will lessen, let alone disappear. But gathering all your debts into one is much less complicated and less hassle.

It will pay your debts off faster

Resorting to debt consolidation may also help pay off your debts a tad faster. This is because you will follow a payment plan and schedule. If you are targeting to become debt-free in over a year, then opting for a payment term of no more than 12 months can help you achieve your goal. This is not easily achievable if you are to pay each debt that you have separately, which could be both stressful and confusing.

Cons of Debt Consolidations

However, it also has its caveats that you should be fully aware of, such as:

It will not reduce your debts

It may seem like using the debt consolidation approach will help unburden yourself from ballooning debts, but it won't. The amount of debt that you have will remain the same. In fact, it may even increase a bit because of potential additional payments such as interest rates.

It may come with additional fees

As mentioned, debt consolidation may come with additional fees. For example, if you are to transfer your remaining credit card debt to another credit card, it may incur balance transfer fees and other additional expenses such as closing costs and annual credit card fees.

"How Can I Get Out of Debt Safely?"

Debt consolidation loans are just one effective method of getting out of debt safely. If you are looking for other equally effective strategies to pay your personal loans, auto loans, and credit card bills, we prepared four other essential steps to help you become debt-free at the end of 2023, or whatever your goal is to revitalize your financial health, so to speak.

List every debt you owe

Even the fifty pesos you borrowed from a coworker, or the twenty pesos you owed a colleague who paid your fare when you didn't have any coins with you. Of course, this especially goes with your bigger debts, from your personal loan to credit card balances. This will help you have a full and clear view of all your financial obligations. Also, consider listing the interest rate for each, if any, as well as the minimum payments and due dates.

Assess how much you can pay monthly

Take a look at your monthly paycheck and evaluate how much you can allocate for your monthly payment. In doing so, you'd also have to calculate your monthly expenses, from electricity and water bills, to your groceries and gas for your car. You may likewise find it necessary to save more and spend less. To supplement your income, moreover, you can also consider engaging in a side hustle or part-time work on weekends or during your free time.

Strategize on your debt management plan

You can choose between these two debt repayment strategies:

• Prioritize the highest-interest debt, which shall then be followed by the next highest-interest debt, and so on.

• Prioritize your smallest debt in order to reduce your debt responsibilities more quickly, followed by the next smallest debt, and so on.

For every debt you paid, allocate the funds you saved for all your other debts. Importantly, make sure to pay your dues on time to not hurt your credit score. To achieve this, set up reminders a week ahead about your debt responsibilities, or make automatic payments from your bank account. Finally, if you feel too overwhelmed to deal with debt management, and you have the means to do so, consult a credit counselor for expert financial advice.

Lead a debt-free lifestyle after paying off all your dues

There's nothing more tremendously fulfilling than being able to pay all your monthly payments and debts. And so, after this, consider leading a debt-free lifestyle and minimizing loans if you cannot completely eliminate borrowing money due to financial emergencies that may happen in the future.

There are good debts and bad debts. One great example of the former is a housing loan to fund an affordable house and lot for sale. Lumina Homes, the modest property segment of Vista Land, allows you to achieve homeownership at affordable selling prices with no compromise on the quality of our home models. We also complement our well-designed houses and lots with convenient community perks such as a multipurpose hall, gazebos, play area, jogging path, mini-gardens, and more.

What is more, rest assured that practically all Lumina projects nationwide are strategically situated near schools, major roads, supermarkets, medical facilities, and local government offices, among others. Secure your affordable house and lot investment today and become a bona fide Lumina homeowner very soon!