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OFW Advice (Part 2): Get out of debt

Debt happens. What’s important is what you do to get out of it.
By Randell Tiongson as told to Mari-An C. Santos |



Throughout the years, I have gone back and forth to speak to our overseas Filipinos in the Middle East and Asia. I have heard many stories of their hardships and challenges. Unfortunately, Filipinos are very trusting and are in dire need of financial literacy. Debt comes from not saving enough, not preparing enough, and having no exit plan.



Our perception and how we deal with money is a behavioral problem. You do not go into debt overnight, you start small. We have to change the behavior. Debt is an issue that is, first, about behavior and secondly, about knowledge. Before buying anything on credit, here are some things you should consider the following things.



Is your prospective purchase a need or a want? If it is not a need, consider postponing and saving up for it.


How much does it cost? Consider buying in cash rather than credit if it ends up cheaper that way.


3.Interest rate

Look at the interest rate on your loans. The best way to deal with a credit problem is by not getting into debt in the first place. Avoid borrowing altogether. If you really need to use credit, make sure it's "good credit"—a home loan or business loan. Shy away from consumer-type loans.



Do not despair if you are buried in debt. Debt is something we can actually do without or at least minimize. The biggest regrets in my life were mostly about getting in debt.



First, do a debt inventory. Make a list of all your debts. On a piece of paper or spreadsheet document, write the following: Name of the creditor; amount due; when the loan was taken out; interest date; due date, etc. Also indicate: current, past due, and under legal action, if any.


Related: Get into a business or pay off my debts?



When you start to pay debt, it will be like going into war, but do you have the ammunition? The logical move that most financial counselors will advise is for you to pay the one with the highest interest. It is logical, right? But that does not work because if you pay them all at the same time, you will inevitably get debt payment fatigue.



What I advise is to do the snowball effect: Once you have identified them, pay for the smallest debts first. When you see progress, then your behavior changes along the way. You start believing that being debt-free is a legitimate reality. As you knock off one debt after another, you will see a positive effect in your cash flow as payments made for your earlier debts can be used to pay your other debts. You become wiser and more prudent.


Related: 4 ways to succeed in business and life


Some people will advise you to consolidate, to take out a personal loan, and pay off the other debts with the amount. But that does not work because it is still debt. It is artificial. You have to go to the root cause. It does not solve the problem, it does not go away. Talk to your creditor. Stay calm and be honest with whoever is trying to collect from you. Let them know your real situation and that you are willing to settle your obligations. Negotiate for settlement amounts.



The root of the problem are the head and the heart.


It is all just a matter of basic money management, of budgeting. You should track and control the outlay of money. For OFWs, access to loans is easy—from banks or personal loans. Then, there are the factors of sending money back home for the family, instant gratification, lifestyle upgrade, pressures to keep up.


Related: 15 ways millionaires manage their money that make them richer


By conducting financial literacy courses in different countries, we are building an army of advocates that can talk to their fellow OFWs in small group discussions or counseling sessions. It is a long process and there are different approaches to different OFWs. But in the end, we wish to enlighten and empower them.


Related article on this series:


OFW Advice (Part 1): Track the money




Randell Tiongson is a life and personal finance coach. Visit his website,



This article was originally published in the December 2015-January 2016 issue of Entrepreneur Philippines magazine. Minor edits have been done by the editors. 


Photo from Thinkstock

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