The main source for money you can use to pay off your debt is your regular income. By reducing your monthly expenses you will free up money to pay down your loans. However, there’s not much money you can squeeze out of a limited income. Below are six other possible sources of money that can help you pay your debt faster.

1. Your savings & investments

If you have money in the bank, use it to pay your loans, especially the ones charging very high interest rates, like your credit card debt. Would you rather pay 3% monthly or 36% yearly in interest for your credit card dues so you can earn an almost insignificant interest of 1% per year from your bank account? That would be very foolish.

Consider this: You have P36,000 worth of credit card debt and P50,000 in a regular savings account that earns 1% yearly. Instead of using your money in the bank you choose to pay your debt through monthly installments for 1 year. So you end-up paying close to P6,000 in interest charges while your money in the bank grows by only P400 (after deducting withholding taxes). Be wise, make the more intelligent move.

As long as your savings or investments are earning way below the interest you’re paying for money you borrowed, use it. However, do not use all your money; leave some for your emergency fund. If you don’t and a financial emergency strikes, you will be forced to borrow again; balik din sa dati ang sitwasyon mo!

2. Borrowing against your insurance or pre-need plan

There are insurance and pre-need (pension & educational) plans which allow you to take out a loan against any cash value that the plan has accumulated. The interest rates for this kind of loans are considerably lower than the rates of other consumer loans. So if you have such a plan, go ahead and take out a loan. (If you’re not sure your plan has it, read the “fine print” again or ask your agent.) It’s perfectly alright to borrow “cheap” money to pay off expensive debt.

3. In-house salary loans

Some companies offer their employees salary loans with favorable terms (e.g. 5%-7% interest per year). You can’t get a loan from outside that will charge a lower interest rate. Find out if your company offers salary loans and check out the interest rates. If it’s considerably lower (at least 5% lower) apply for a loan. Just make sure you use it to pay for your high-interest debt; hindi sa bagong sapatos o damit.

4. Selling your belongings

Consider selling some of the things you own and use the money to break free from your debt. Look around the house and see if there are things you can do without. An expensive cellphone is a good candidate for disposal. Sell it (you won’t miss all those features & functions) and buy a cheaper one then use the extra cash to pay off your debt. You can try to pawning some of your jewelries or gadgets. However, pawnshops charge high interest rates (comparable to credit cards), so you might be better off selling them instead; unless they have a sentimental value. But then again you can’t be too sentimental if you are deep in debt.

5. Taking out a loan against your property

For huge debts you can apply for a loan with your real estate or car serving as the collateral. Although interest rates for this type of loans are also quite high, these are still much lower compared to credit card interest rates. As a rule of thumb take out a loan to pay off your debt only if the interest charged is lower than the interest you are currently paying. (But sometimes you will have no other option but to get a more expensive loan to pay off a long overdue debt & keep intact whatever is left of your integrity.)

6. Loan from family & friends

The best source of money for paying your debt is your family, close friends and relatives. If you are honest about your situation and they find you trustworthy, you might be able to borrow from them without having to pay any interest. It can’t get any better than this. However, don’t disappoint them and let them lose their trust in you by not paying them back. Don’t make a promise you can’t keep; hindi ka na makakaulit.

Last update: February 14, 2008
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