One of the financial struggles of Filipinos is getting out of debt. Researchers and financial analysts agree that in the Philippines, borrowing money is considered one of the fastest ways to solve financial needs within families. Since Filipinos have access to multiple money lending services, it’s also easy for one’s debt to swell into enormous proportions.
Debt can either be good or bad. On the one hand, borrowing money to finance the purchase of a house or car can help you gain assets later on, as long as you can afford to pay it off. On the other, charging different types of expenses on your credit card means spending your future income even before you earn it.
Regardless of the type of debt you incur, you need to be disciplined in paying off debt. In doing so, you can reduce your monthly bills and use the money intended for it toward savings or investments like what you get when you have a life insurance plan.
The so-called debt snowball and debt avalanche methods are helpful in debt management. Both approaches have the common goal of eliminating debt and require that you pay the monthly minimum amount due on all your debts. However, they differ in such a way that each one targets a specific or focus debt.
In this method, you start paying off your small debts before moving on to the bigger ones. Small debts may refer to money you borrowed from your family or friends, while cash advances on your credit card may put you into debt on a larger scale, making it an example of big debt.
The focus of the snowball method is on the progress you can make by getting your small debts out of the way first. As financial expert Dave Ramsey says, “Personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely.”
This approach is best if you: