Before the pandemic, credit cards, government-financed loans, bank loans, and the manual 5-6 borrowing are very popular ways of getting loans in the Philippines.
However, after the COVID-19 pandemic, the need for loans started to soar up because more and more Filipinos don’t have enough money to finance their daily needs and monthly consumption. This has brought about the age of online loan applications, most of which are considered controversial when it comes to credit handling by loan app recovery agents.
It is quite easy to get loans via online lending apps. The requirements are not too difficult, just a government id and an actual selfie would do. This is the reason why online bank apps and loans are very popular among Filipinos and this is also the reason why so many Filipinos are struggling to pay their debts.
It’s very common for Filipinos to have multiple loans because many were laid-off because of the effects of the pandemic and Enhanced Community Quarantine (ECQ) restrictions on business operations. This resulted in numerous loans and credit card balances, making payment scheduling difficult. Some have even resorted to loans with circular life spans, which is to lend from one lending app to pay for another. However, this is not wise because the interest keeps going up and people tend to pay more than they actually intended.
Also, as stated in an article by Philippine News Agency, another major reason why loans have risen to as high as 1.47 Billion pesos in March 2021 was because of the rise of MSMEs or Micro, Small, and Medium Enterprise.
In June 2021, BWorldonline.com reported that Bangko Sentral ng Pilipinas (BSP) is also constantly developing simplified loans to make business loans easier to augment the loss of jobs because of the pandemic. Filipinos are rather resourceful, in 2019, Philippine Statistics Authority estimated that 99.5% of the 1.5 million businesses operating in the Philippines are MSMEs.
Although the pandemic has been really hard for most of us, many are slowly recovering and getting new jobs and online opportunities. This has paved the way for many to begin tackling and paying their debts and loans.
When paying the debt in the Philippines, there are 5 different techniques that Filipinos use. The first two are official terms and the next two are just coined to explain how we usually pay our debts, and the fifth method is the most effective way of clearing debt.
The first one is called the Debt avalanche method.
In this method, we usually pay the debt with the highest principal and interest. It is the slowest method and very frustrating because it seems the other debts are growing while you try to eliminate the highest debt. But once you get the highest debt out of the way, the succeeding ones are fairly easier. This method is for those who have high patience and strong mentality and perseverance.
The second method is called the Debt snowball method.
This method lets you pay the smallest of your debts first. This gives you more motivation and momentum to pay off the rest of the debts because you are eliminating more debts in a shorter time. The downside of this technique is that the highest debt blows up a lot bigger than when you use the first method.
The third method is called the Raindrop method.
In this method, we pay off as much as we can from each of our debts. The effectiveness of this depends on the number of debts. If it’s just two or three debts, it’s easier to manage, however, if there are several debts involved, it becomes tedious and oftentimes, it doesn’t get us far because interests and penalties make debts bigger, and later on, some resort to the fourth method.
The fourth method is the ninja mode.
This is the unfortunate result of failure to clear debts. Most people just go abroad and never look back on their debt or try to go into hiding in provinces, etc. to escape their debt responsibilities.
However, the good news is there is a fifth method, which has proven to be the most effective method.
The fifth method is what we call DEBT CONSOLIDATION.
WHAT IS DEBT CONSOLIDATION?
Debt consolidation is the act of taking in another loan to pay off all other loans so that you only have to focus on paying just one debt.
WHY SHOULD YOU CONSOLIDATE YOUR DEBT?
One of the advantages of debt consolidation is that you don’t have to weigh in and decide which of your debts should be paid first, there is no snowballing of interest and penalties for debts that are not being paid while you are focused on paying your other debts, and there is less stress on your part to pay off your debt because you will be more focused on paying just one debt.
Stress is a major factor why many Filipinos give up paying for their debt because of a lack of debt management. If you do debt consolidation, it is easier to manage your debts and easier to be free of your debts.
You won’t be immediately free of debts, you’ll just be able to breathe a little and have more control over your debt this way. This is an even better idea if debts such as credit cards and loan apps charge very high interest and penalties.
Consolidation of debt doesn’t always mean lower fees. Yes, it makes payment easier because you’ll be focused on just one loan entity but you should be mindful in choosing how to consolidate your debt because you might get trapped into paying even higher interest rates, etc.
It is not a good idea to get a credit card to consolidate your debts because if you use that credit card’s limit, it might hurt your credit score. After all, that’s considered a red flag.
There are many ways to consolidate your debt but I suggest the methods below.
EASIEST WAYS TO CONSOLIDATE YOUR DEBT:
When consolidating your debt, don’t just jump in and select the first option that you come across. Research and read more about debt consolidation to help you be more knowledgeable about debt consolidation.
Debt consolidation is a very serious matter and being able to choose your best option may mean the difference between a stress-free debt consolidation process and a hazardous one. A good starting point is reading articles at debtconsolidation.com.
Listed below are some of the easiest ways to consolidate your debt in the Philippines:
- Social Security System (SSS) Salary Loan – If your debt is below 20k, you can try consolidating your debt using the SSS Salary Loan. For first-time loans, the amount may be a little low, but for second loans onwards, there is a big increase in the amount that you’re allowed to loan, estimated to be around 35k, depending on your salary, number of months of membership, and monthly SSS payments. Monthly payments can be done via salary deduction, which is processed by your company’s HR department or manually paid/deposited if you’re an entrepreneur.
- Debt Consolidation/Personal Loan from banks – Two of the best options for debt consolidation are Banco de Oro (BDO) Personal Loan and Citibank Personal Loan. BDO Personal Loan offers personal loans between 10k to 1million pesos and the term range is between 6months to 36 months. The effective annual interest rate is around 25.98% to 26.27% depending on the term range. Citi Personal Loan, on the other hand, offers loans up to 2M pesos and payable within 5 years with no collateral needed. The annual rate is 26.9%. Note that there are miscellaneous fees for cash disbursements and closing of loans. These two loans are not just your option for banks. Other banks also offer ways to do debt consolidation but I included the two here because these two are the leading banks in the Philippines and you can be sure about the trust ratings.
- Credit Card Balance Transfers – Instead of having multiple credit cards and loans, consolidate everything into one loan. Pick the credit card which offers 0% interest in the first 12-18 months. Note that there is usually a transfer fee and 0% interest does expire so make sure you pay your consolidated loan within the grace period to avoid high interest rates.
- Peer-to-peer lending – Some private individuals offer loans even if you have low credit scores. Unfortunately, there is only a handful of these that are actually helpful. If you’re not careful you might get scammed by being asked to pay processing fees for cash loans that are actually non-existent. Although there are some valid lenders, Peer-to-peer lending is just too risky unless the person offering you this option is a relative or a very close family friend.
- Home Equity Loan – Banks do offer home equity loans that are secured types of loans. However, your home is at risk if you don’t pay the banks. There are even banks like BDO which offer a second mortgage, however, make sure that you can pay and you have a stable income before venturing further so as not to lose your home in case you default.
It is important to note that you shouldn’t try to add more debt in the future and focus on paying off the consolidated debt first before planning or adding any more debt or expenses in the future.
WHAT OTHER WAYS CAN HELP YOU PAY YOUR DEBT:
As you venture towards paying your debts. It is highly encouraged that you find other ways to help you earn and pay your debt on time.
- Find Extra Income – explore online selling, look into what you can create and sell using your skills such as food products, soap, buy & sell items, etc.
- Create a Passive Income – explore Youtube videos that help you create passive income, as well as blogging, vlogging, etc.
- Invest – Learn to invest no matter how small you start, so that you’ll learn the true value of money.
- Cut down on your expenses – Don’t buy stuff that won’t add or contribute to your finances or overall happiness. Before buying anything assess whether the item is an investment or if you could buy the item at a later time, particularly, after you’ve paid all your debt.
- Create an Emergency Fund – No matter how hard your finances can be, it’s important to start an emergency fund and also look into health insurance. With the way the world is revolving around the changes brought about by the pandemic, it is wise to ensure that you have enough funds to cover anything in case you or your family gets sick. This is a good measure so that you won’t be buried in a ton more debt in case of emergencies and unexpected sickness.
How about you? Comment below if you have simple and better ways to consolidate your debt.