Most Filipinos view loans in a negative light. And why not? But availing a loan can also be beneficial to our lives. Here are some tips to help you manage your debts responsibly and efficiently.
Most Filipinos view loans in a negative light. And why not? Aside from the social stigma that comes from having an utang, we are also haunted by the thought of getting entangled with financial jargon, being hounded by loan collectors, and getting buried under huge interest rates.
But availing a loan can also be beneficial to our lives. If you are looking into venturing into a new business, for instance, availing a loan can help your business take flight.
If you are an Overseas Filipino Worker who needs some help on pre-departure preparations, loans can also be your best friend.
Lastly, loans can come extremely handy when emergencies pop out of nowhere. After all, life doesn’t always go our way and there are times when we are caught unprepared by circumstances.
Managing Loans Properly and Responsibly
Loans need not be scary as long as we manage it properly and responsibly. But how, though? One great way is to pay it off as quickly as possible.
Paying loans quickly allows you to avoid incurring interests and penalties. In the long run, this will save you a considerate amount of money, which you can then channel back to your savings.
This applies not only on big loans such as mortgages but also to small loans such as credit card bills and installment plans.
Below are 4 tips on how you can pay off your loans faster.
Tip #1: Pay it twice a month
The easiest and fastest way to get rid of your loan is to pay it in a bi-monthly rather than a monthly basis. By paying for your loans twice a month, you will cut down the duration of your loan by a half.
This is also great if you have a steady income (say, coming from a day job) that gives you a bi-monthly salary. By timing your loan payments alongside your salary, you:
- Won’t forget your payments
- Will be able to immediately set aside cash for loan payments
- Will be able to manage your budget appropriately around the loan payments and other bills that require payment.
By chopping up your loan into bi-weekly chunks, you will not feel too much strain when paying it. Before you know it, you’ve finished paying for your loan in no time!
Tip #2: Round it up
So let’s say your bi-weekly loan bill amounts ₱4650. Instead of paying that amount, why not round it up to ₱5000? The extra ₱350 won’t make that much of a dent in your wallet, yet it will go a long way into accelerating your loan duration.
Imagine, in one year that additional ₱350 will amount to ₱8400 pesos of extra payment. That is ₱8400 off of your total loan! Remember, small things add up and turn into big things!
Tip #3: Create a fail-safe plan.
We take loans under the assumption that we will always be able to pay off our monthly amortization. But we never know what the future might bring and there are times when our finances come short – what to do then?
The best way to handle scenarios like this is to be proactive and have a fail-safe plan.
Talk to your banker and discuss available options in case you end up not being able to pay for your monthly bill for a period of time.
Have them sign you up in the lowest possible payment amount and supplement that with a voluntary payment option agreement that will allow you to pay in additional amounts whenever you have extra cash.
And speaking of extra cash…
Tip #4: Make extra payments whenever possible
If you really want to pay off your loans as early and quickly as possible, consider making extra payments whenever you have a surplus of cash. A great example of this is when you receive your Christmas or performance bonus, tax refunds, or extra income from your sidelines.
As long as your payments are updated, all payments will go towards paying for your principal balance and not your interest.
This is another reason why being updated with your payments and not letting your interests accumulate are good practices to keep when managing your debt.
When we think of financial investments, we almost always think of acquiring properties but to be frank, paying off debts is probably the best financial investment that we can give to ourselves and our families.
Once you’ve successfully paid off your loans and other financial responsibilities, you are on your way to investing and growing your life savings!