How to Recover from Terrible Debt

by Carlo Miguel Castañeda, on category "Money Matters,Personal Finance"

August 17, 2015


Recover from Debt
Being young and in debt is more common these days than it used to be. It may be due to the fact that it’s easier to get the things that you want on installment. The thing is, debt in the Philippines is vastly different than it is in the West.
There’s debt, and there’s utang. The latter isn’t the kind of debt that involves paper, or even actual money. Most young people feel obligated to provide for their families when they’ve got stable jobs. Utang is basically money borrowed from family or friends, or favors (utang na loob) owed in the same aspect.
At times, the need to pay back the people who help you can lead to you taking on debt that may seem beyond your ability. We talked to Jake Rosario – an IT Analyst and now, investor – on what it was like to have to recover from six-figure debt in his twenties.

Where did the debt come from?

JR: From all sides, really. It stemmed from wanting to ensure my siblings’ education as soon as possible. Given that it was their senior year, I figured it couldn’t hurt. I had a stable job, so I could pay it off slowly. Then the bills started piling up, and everything just went balls up – wait, can I say “balls up”? The debt came from using my credit card to pay their tuition, and then my brother had an accident that required surgery.

What did you do when you learned it had reached six figures?

JR: There’s this overwhelming kind of despair that threatens to take you over when you see that bill. I’d racked up a high five-figure charge on two credit cards, and then there were hospital bills and money that I’d have to pay back to family. All in all, I was looking at Php 245,000 in debt – and that was without the interest, late fees, and surcharges.

Was there a plan to get out of it?

JR: Originally, I’d structured my credit card bills so that I’d only have to pay at the end of each month. With the amount I was making, it would’ve been manageable. But because we didn’t have an emergency fund to deal with my little brother’s confinement, it really drove home that I didn’t have a concrete plan to ensure that I’d be able to pay off all my debt.

So how did you plan to get out of debt?

JR: I read online that the one of the best ways you can start getting rid of debt is to start by paying off the one with the highest interest rate. So I went to my bank and asked for the most updated statement of my account for my credit card, then requested a waiver. It meant that all I would have to do is pay off the entire balance and the bank would consider those particular accounts closed.

How long did it take?

JR: Not as long as I thought it would once I made the commitment to really pay it all off. Granted, it meant that my personal life took a really hard hit for the next couple of years. I paid more than the required monthly due as a show of good faith and just so I could get it over with. I won’t say that it was easy going. It was really, really difficult. I had a lot of late nights doing side jobs just so I could make the payments.

What happened after?

JR: Two years later, I’d paid it all off completely, and my siblings had stable jobs of their own. We ate out (their treat) the night I’d gotten the latest statement of account, showing that I had zero balance. I cut up my cards. It was then that I realized that I needed a plan for the possibility that this would happen again. I started saving again, and when I had enough, I had a good friend teach me how to invest in mutual funds.

What would you say to someone currently dealing with debt?

JR: Take it a day at a time. Nothing comes from panicking over it and feeling like you’ll never find a way to pay it. I know that there are people who get so deep in debt that collectors are hounding them. It also takes being in the mindset that you want to pay it all off as soon as you can. When you know what it’s like to be so deep in debt, you’ll do all you can to make sure that you’re never caught like that again.

Would you do anything over?

JR: It probably would have helped if I had savings to draw from, and an emergency fund. That’s what I do now. I have a budget that I stick to, I make sure that I’ve got an emergency fund, and I save ‘til it hurts. But as for my debt, I didn’t spend that money on anything that was a waste. I used the money to pay for my siblings’ education, and to make sure that my brother could keep his hand.

Final Thoughts

Being in debt at all is a test of fortitude and will, regardless of the amount. Jake is an example of being able to keep a cool head while dealing with a high amount of debt. It’s a hard lesson to learn, but one that sets you up to ensure that you take control of your finances completely so that it doesn’t happen again.
How would you deal with six-figure debt? Tell us in the comments below!