It is a sad fact that while some overseas Filipino workers are earning bigger abroad, not all of them are doing good in terms of money management. As a result, they eventually finish their contract with no savings and, worse, they have to face lots of debts as they return to the country.
While it is true that borrowing money is common among most Filipinos, it should also be pointed out that people borrow money for different purposes.
In a Rappler report, we learn that Vince Rapisura, president of the Social Enterprise Development Partnerships, Inc., recently launched a new book entitled “(L)earning Wealth: Successful Strategies in Money Management.” In the said book, the author explained that there are several things to consider before an OFW should borrow money.
5 Important Rules of Borrowing Money
According to Rapisura, these are the 5 important rules of borrowing:
1. Borrow money only when you plan to use it for productive purposes. This means using the money to finance something that creates income.
2. Income from this project should be greater than the interest you will pay.
3. Installment amount should not exceed 20% of your regular income.
4. Do not borrow to finance wants. To be able to buy the things you want, save for it or create an investment portfolio that will provide you with a passive income.
5. Lastly, borrow only from formal financial sources. This way, you can take advantage of lower interest rates and establish your credit history.
4 Questions To Ask Before Borrowing
Likewise, there are questions to ask before an individual goes into a loan, such as:
1. Do I really need this loan?
2. Will this loan help me earn more money?
3. Can I afford the borrowing cost of this loan?
4. From whom should I borrow?
Taking these thoughts into consideration should help you be cautious about borrowing.
How To Get Out of Bad Debt
Now there are instances when people get into a debt because of an emergency. Rapisura said this is also not advisable. But if you are already in a bad debt, then there is also a way to get out of that.
Here are “4 steps to free yourselves from bad debt,” as taught by Rapisura:
1. The first step is to stop incurring even more bad debt. Stop making loans that are not used for productive purposes.
2. The second step is making a list of your bad debts. You have to know your enemy. If you borrowed money from informal sources without a contract, initiate one. List the debts from the highest to the lowest effective interest rate.
3. Now check if the total installment amount or minimum payment required is below 20% of your gross income. If not, try to negotiate the terms and conditions with your creditor. You may offer to lengthen the period of your loan to make payments more affordable. If not, you may try looking for other means of creating income or scrimp on expenses.
4. After that, pay the installment amount or the minimum required payment for each loan. If you have excess money after paying the loan with the least effective interest rate, use it to make an additional loan with the highest interest rate. You should aim to get rid of loans with the highest interest rates first.