How To Get Rid of Debt and Reclaim Your Finances

September 10, 2017

Today we will talk about the scary four-letter word DEBT specifically on How To Get Rid of Debt and Reclaim Your Finances.How To Get Out of Debt Fast

I rarely talk about debt here on the blog. I am pretty much blessed to have hard-working parents. Both my mother and father worked hard to sustain our needs. We are not rich but my parents inculcate the best financial habits to us. I and my siblings have never experienced na mangutang sa tindahan o mag-promisory note para makabayad ng tuition.

Even at 23, I don’t have a credit card of my own and will need my sister’s approval (kung pwede ko ba gamitin yung credit card) to purchase something big. I get causal liabilities once or twice a year only like my HP Laptop which I paid for about a year and my Canon EOS M3 camera which I’ll be done paying this November 2017. I always, always pay my bills on time.

I know my parents suffered a lot to make both ends meet. We came to a point na kailangan mamasukan ni Mama bilang labandera sa aking Tita because my three older siblings were all in college. But no matter how hard the situation is, my parents didn’t let us feel that they were having financial difficulty. They continually hustled for us, even up to this day.

Through the years of blogging, I came across messages asking help and guidance on how they can get rid of debt and reclaim their finances! I remember getting an email from a SavingsPinay reader who shared her struggle with debt. Her net income every month is only P 12,000 but her expenses goes up to P 36,000 a month for bills, food and transportation allowance, school expenses and last but definitely not the least – DEBT.

To survive she is forced to take loans from friends and family members. She will also apply for loan on around four credit cards she owns, using one to pay the other like a cycle. 

If you find yourself in the same situation, I hope this post helps you.

Related posts:

Here’s a Strategy to Pay Debt Even with Low Salary

8 Smart Money Moves To Do In Your 20’s

How To Save Money Each Month | A Definitive Guide for Pinoys

What you will learn from this post:

  1. How to evaluate your debt
  2. Apply doable action plan to pay down your debt fast!
  3. Prioritize the debt you need to pay
  4. Manage not just your debt but also your creditors
  5. Get rid of debt and reclaim your finances once and for all!

How To Evaluate Your Debt

Getting rid of debt is a wonderful feeling. It’s like getting a much needed rest after a day of hard work. It’s like resting your feet after running a marathon wearing high heels. And the very first step you need to do to get rid of it is to EVALUATE.

There are two kinds of debt in this world. We have what we call “good debt” and “bad debt”.

Good debts are considered as debts that can generate you income and increase your net worth. Best examples of good debts are as follows:

  •        Buying a camera to start your photography business
  •        Getting a loan to start your own business
  •        Obtaining a house and/or lot to be sold or rented out
  •        Purchasing jewelries or collectibles
  •        Borrowing money to invest

Bad debts are the dangerous kind. These are certain debts you get by purchasing depreciating assets. Some examples of bad debts are:

  •        Credit Card used to pay for a want (maybe a new phone, a new appliance at home)
  •        Car

First, write it all down

I consider this step as the hardest part of the debt-free process. Seeing your debt in paper is tough and remembering how much you owe is a struggle. But, you can never face your debts without acknowledging them once and for all.

You can never face your debts without acknowledging them once and for allClick To Tweet

What I want you to do is grab a pen and a paper and writer down all the person, company or bill that you owe money to.

Think of everyone and everything from your in-laws, the credit card that you maxed out, Meralco and Five-Six. From good debt to bad debt, from smallest to largest just jot down everything on a sheet of paper.

A good format you can follow is this:

You may be shocked, afraid or stressed out with the total but don’t panic. Knowing your total debt is the very first step to become debt-free soon. How come?

Because you now have idea on how much money you really owe, you can develop a solid strategy to pay off your debt .

Then, calculate Debt-to-Income Ratio

Debt-to-Income Ratio is a way to measure an individual’s ability to manage monthly payment and repay debts. You can actually use this method to assess your capacity to pay your total debt based on the income you have at the moment.

Knowing Debt-to-Income Ratio will let you know whether you can really pay off your debt sa pera na kinikita mo ngayon. It will help you assess if your level of debt is still manageable.

Here’s the formula:

Debt To Income Ratio


  • Total Debt and Total Income is on a monthly basis.
  • Differentiate the Debt from the Bill. We are talking about debt here and not the monthly bills like electricity, rent etc.


Juan’s total monthly income is 12,000pesos (This is his take home pay from his day job)

His monthly debt is 4,000pesos (Monthly credit card payment, housing loan etc.)

Total Debt/Total Income = Debt-to-Income Ratio

4,000/12,000 = 0.33 or 33%


A low debt-to-income ratio shows a good balance between debt and income. Financial advisers suggests a good 10-20% as ideal Debt-to-Income Ratio.

A higher debt-to-income on the other hand suggests that a person has too much debt for his income. This can cause financial loop hole in the long run.

Looking at Juan’s Debt-to-Income Ratio as an example above means 33% of Juan’s salary just goes to pay off debt. This percent is alarming because it is almost 50% of what Juan is getting on a monthly basis.

If you ever get a higher Debt-to-Income Ratio then there are only two solutions you can do:

  1. Don’t add any debt anymore and focus on paying your current debts.
  2. Increase your month income so you can have more means to pay.

By using the same formula you can clearly see the correlation of debt to income. If you lower your debt even with the same income, you will have lower debt-to-income ratio result. Likewise, if you increase your income even with the same debt you need to pay, your finances will not suffer that much.

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5 Doable Actions to Pay down Your Debt Fast

Now that we pretty much covered the basics of debt management. We can now formulate a method on how to pay. Below are some of the most effective methods to get rid of debt. These steps guarantee that you can free yourself from personal debt, car loans, salary loans, credit card dues and mortgages sooner!

Pay with cash

Stop using your credit card to pay for everything. If you really want to stop getting into more debt then you have to learn how to pay with cash. Paying with cash will give you consciousness with how much money is getting out of your cash flow.

Use bonus and extra money to pay debt

Before you build an emergency fund, before you make a budget, before you pursue any investments – you need to get rid of debt and reclaim your finances first.

The fastest way you can do this is by using your bonus or extra money as payment. Now that the end of the year is near, we all are sure excited for the bonuses, 13 Month Pay and extra money coming.

Automatically put all your extra money to pay debt. I know this is the saddest thing ever considering all the hard work from the past year but at least you are off to a better start in the coming New Year.

Pay the most expensive debt first

This particular tip has been shared for a lot of times already and it definitely works. Once you have evaluated your debt you’ll surely know which has the highest to lowest interest rate.

A great strategy to get rid of debt is to pay the most expensive debt first. Focus on the debts that accumulate higher interest rate. The faster you get rid of the most expensive debt, the more money you can have to pay down the rest of your debt.

Pay the smallest debt first

This is the complete opposite of what I mentioned above. The Debt Snowball Method was first introduced by Sir Dave Ramsey. This technique suggests that you pay the smallest debt first.

Once the smallest debt is done, you will have to pay the next smallest debt until your debt is done at last. Because you are first paying for the smallest debt, you can easily feel the success and this will motivate you to stay focused on your goal.

Increase your income

Try to earn extra income on the side. You can read my post on 21 Side Hustles to Start this 2017 with Your Full-Time Job for some example. Manage your spare time and use it to your advantage. Never settle with just one source of income because it isn’t and is never enough. The lifestyle we live today plus the debt that you owe can only be met and solved with extra money.

How To Negotiate with Your Creditors

Of course we would all want to pay our debts on time. Sino ba namang may ayaw nun? However, unwanted circumstance like a sudden loss of job, an unexpected life event happen or you have overspent your money, may cause for us to fall short of amount we have to pay for people/company we owe.

I understand how some will choose temporary solution of just ignoring the phone calls, private messages, email and frequent visits ng mga pinagkakautangan natin. But remember this:

It is your responsibility to pay.

Not everyone is good in negotiating. The key here is to come up with an agreement – a mutual understanding between you and your creditor. It should be something acceptable and confirmed with a written payment rate and schedule.

If the communication went well, your creditor might give you more time to pay, may reduce the monthly payment and even drop the late charges.

Creditors may not be that willing to offer some payment alternatives but I’m sure mas magugustuhan nilang mabayaran paunti-unti kasiya hinde.

Make sure not to break the agreement anymore. Below are the tips I can share about negotiating.

1. Tell Your Story

Your creditor will surely want to know what happened to you and the reason/s you can’t pay your debt on time. Be consistent and honest enough on your story. Do not add or omit any details.

2. Avoid the Drama

Be sincere as you tell you story but please avoid becoming too dramatic. Your goal is to negotiate and let the creditor understand the situation. You don’t want him/her to be confused.

Tell the reason you cannot pay on time, your current income, your other debt/bills ti pay and how much you are able to pay per month (or per week) just to keep up with your debt.

3. Have a Written Agreement

Put everything down on a paper and let both parties sign as a sign of perfect agreement. In this part consider your debt-to-income ratio. Make your creditor understand that with your current financial situation you can only pay an x-amount every month.

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Final Notes from SavingsPinay

To get rid of debt is one of the best financial move you can do in your life. It promotes financial peace and security, more money to spend without guilt and improves your ability to save and invest.

Treat getting out of debt as a goal.

Simply feel in the blanks:

My goal is to pay an amount of _________________ to ____________ by _________ .

Example: My goal is to pay an amount of 30,000pesos to my Personal Loan with Kumpare Jose by end of 2016.

Other variations are as follows:

My goal is to pay __________ every __________ to ______________.

Example: My goal is to pay 2,500pesos every month to my debt-payment fund.

My goal is to finish paying my ____________ before ________________.

Example: My goal is to pay my student loan before 2017 ends.

Once you make your debt a goal rather than a task you’ll see it as a big project with small and manageable next actions. I will assure you that this mind set is way better and will help you pay even on a low income.

To sum it up below are six things you can do today that will help you get rid of debt and reclaim your finances:

  1. Spend a good 10-15 minutes to write down your debt.
  2. Evaluate between your good debt and bad debt.
  3. Total the amount.
  4. Now get your Debt-to-Income Ratio using the magic formula. Make sure you are on a monthly basis.
  5. Assess the result. Do you have Low Debt-to-Income Ratio or High Debt-to-Income Ratio?
  6. Choose a Solution.

If you did the steps above can you share it to me? Comment below and find accountability partners from other SavingsPinay Readers. You can also go to the SavingsPinay Facebook Group and join others who share their saving, budget, investment, productivity, career and other financial problems, questions and issues.


Clariza Glino

Izza of SavingsPinay helps Filipinos bridge the financial literacy gap one content at a time by providing insights and tips on budgeting, saving, investing, side hustle and growing your net worth. Aside from this blog she also writes at, a beauty and lifestyle blog for frugal Pinays and manages,, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her at

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