Step 6 of 7
Debt traps and your payoff plan
Easy money is rarely cheap money. Before you borrow, know what it really costs.
Credit cards
- How it works
- Pay the full statement balance and you pay no interest. Pay only the minimum and interest piles up every month.
- Watch out for
- The interest cap is up to 3% a month, roughly 36% a year (check BSP's latest rules).
Online lending apps
- How it works
- Fast cash with few requirements, often for short terms.
- Watch out for
- High fees, short deadlines and, with illegal apps, harassment. Borrow only from SEC-registered lenders.
5-6
- How it works
- Borrow ₱5,000, pay back ₱6,000 within weeks.
- Watch out for
- That's 20% for a few weeks, which can add up to well over 100% a year.
Buy now, pay later (BNPL)
- How it works
- Split a purchase into installments, sometimes at "0%."
- Watch out for
- Late fees and many small plans that add up. Count every installment as a monthly bill.
| Type | How it works | Watch out for |
|---|---|---|
| Credit cards | Pay the full statement balance and you pay no interest. Pay only the minimum and interest piles up every month. | The interest cap is up to 3% a month, roughly 36% a year (check BSP's latest rules). |
| Online lending apps | Fast cash with few requirements, often for short terms. | High fees, short deadlines and, with illegal apps, harassment. Borrow only from SEC-registered lenders. |
| 5-6 | Borrow ₱5,000, pay back ₱6,000 within weeks. | That's 20% for a few weeks, which can add up to well over 100% a year. |
| Buy now, pay later (BNPL) | Split a purchase into installments, sometimes at "0%." | Late fees and many small plans that add up. Count every installment as a monthly bill. |
Before you borrow, ask
- Is this for a need or a want? If it's a want, wait and save for it.
- What is the total I'll pay back, not just the monthly amount?
- Can my budget carry this payment even in a bad month?
- Is the lender registered with the SEC (lending and financing companies) or BSP (banks)?
Your debt payoff plan
If you have more than one debt, list them all, keep paying the minimum on each, and put every extra peso toward one debt at a time. Two proven ways to choose which one:
Avalanche
Highest interest first
Saves the most money, because the most expensive debt disappears first. Best if you're motivated by the math.
Snowball
Smallest balance first
Gives quick wins, because a debt disappears fast. Best if you need early motivation to keep going.
When one debt is paid, roll its payment into the next. Your payments grow like a snowball even if your income doesn't.
List your debts
Free Loan Interest Calculator
See what each of your loans really costs.
Saying no to utang, kindly
Helping family is part of who we are, but lending money you can't afford to lose can hurt both of you. You can say no with warmth:
- "Gusto sana kitang tulungan, pero naka-budget na ang sahod ko this month."
- "I can't lend ₱10,000, but I can give ₱1,000 that you don't need to pay back."
- "Let's look at other options together, like an SSS or Pag-IBIG salary loan."