Many Filipinos face a constant cycle of debt without realizing that their expenses are exceeding their income. This overwhelming cycle of borrowing, paying, and borrowing again can feel endless. However, with the right approach to money management and the discipline to stick to it, anyone can break free from this financial struggle. It’s time to start thinking about how to get out of debt and take control of your finances, so you can save, invest, and enjoy more financial freedom.

In this simple guide, we will walk you through actionable steps to help you get on track towards a debt-free and financially secure life. 

1. Understand Your Financial Situation

The first step in getting out of debt is to know exactly where you stand. Before you can make any changes, you need to take an honest assessment of your income, expenses, and debts.

Ask yourself these questions:

✔ How much do I earn each month? – This includes your salary, side hustles, commissions, or any other sources of income.  

✔ How much do I spend each month? – Track your expenses including rent, utilities, food, transportation, and even small purchases.  

✔ How much debt do I have? – Make a list of your debts, including credit card balances, loans, and any overdue bills. Don’t forget to note interest rates and payment deadlines.

Action Step: Write everything down in a notebook or use a free budgeting app like Goodbudget or Wallet to keep track of your income and expenses.

2. Cut Unnecessary Expenses 

Now that you have a clear view of your finances, it’s time to cut down on unnecessary spending. This is a critical step if you want to know how to get out of debt fast.

✔ Avoid Impulse Buying: Always ask yourself, “Do I really need this?” before purchasing anything.  

✔ Eat at Home: Preparing meals at home rather than eating out can save you a significant amount.  

✔ Reduce Unnecessary Subscriptions: Cancel unused memberships or apps like streaming services or gym memberships.  

✔ Limit Luxuries: It’s fine to treat yourself every now and then, but always within your budget.

Action Step: Set a weekly spending limit for non-essential items and make sure to stick to it.

3. Pay Off Your Debts Strategically

Your top priority is paying off your debt. Two proven methods to do this are the Snowball Method and the Avalanche Method.

✔ Snowball Method: Pay off the smallest debt first to gain motivation, then tackle larger ones.  

✔ Avalanche Method: Pay off the debt with the highest interest rate first. This is the most efficient method in terms of saving on interest.

For example, if you have a ₱3,000 loan (5% interest) and a ₱10,000 credit card balance (10% interest), the avalanche method would suggest paying off the credit card balance first because it’s more expensive due to the higher interest rate.

Action Step: Make sure you pay more than the minimum amount on your debts each month, using the method that works best for you.

4. Build an Emergency Fund

Once you’ve started to make progress on your debt, it’s time to build an emergency fund. This will help ensure that you don’t fall back into debt when unexpected expenses arise.

✔ Start Small: Aim to save at least ₱50-₱100 per day.  

✔ Aim for 3-6 Months of Expenses: This is a solid goal for your emergency fund.  

✔ Choose a Safe Savings Option: Store your emergency fund in a safe, high-interest account like a digital bank.

✔ Add Another Stream of Income: Try to discover other ways that you can earn money by adding a side hustle on your free time.

Action Step: Open a separate savings account specifically for your emergency fund and automate a small deposit from each payday.

5. Start Investing for the Future

Once you’ve secured an emergency fund and reduced your debt, it’s time to think about building wealth for the future.

✔ Stock Market & Mutual Funds: Great for long-term wealth-building.  

✔ Pag-IBIG MP2 & Digital Banks: Ideal for beginners who want safe, higher interest returns.  

✔ Side Hustles & Small Business: Use extra savings to start a business for passive income.

Action Step: Start with small, simple investments like Pag-IBIG MP2 or a trusted mutual fund. You can gradually grow your investments over time.

6. Reward Yourself (But Wisely!)

Managing money doesn’t mean you can’t enjoy life! As you make progress in getting out of debt, reward yourself, but do it smartly.

✔ Plan for Travel or Gadgets: Save for these things instead of using debt.  

✔ Give Back to Family: Help out your loved ones, but make sure you have a plan.  

✔ Invest in Yourself: Take courses, learn new skills, or start a passion project.

Action Step: Set aside a small percentage of your income into a “Rewards Fund” for personal enjoyment without straining your budget.

Final Thoughts: Small Changes, Big Results

It takes patience and discipline to manage your money effectively, but the results are worth it. By tracking your income, cutting unnecessary expenses, paying off your debts, and saving strategically, you can achieve financial freedom and live life without stress.

Remember, it’s not about how much you earn, but how well you manage your money. Start making small changes today, and your future self will thank you for it!

By following these steps, you will be well on your way to mastering your finances and getting out of debt. Start today by booking a sit down consultation with our Certified Financial Advisor and Wealth Coach, and take control of your financial future!