Debt-freedom, Finances

How We Got Out of Debt

Being in debt is very common in most Filipino families today. It becomes so normal in the Philippines that some are even buried up to their eyeballs just to keep up with their friends, co-workers, and whatever is trending on social media. They already lost the hope of getting out of debt in the future. 

I remember the time when my husband and I decided to break the norm and get out of debt. We were sick and tired of the stress of too many bills and the burden of debt piling up, which pushed us to our breaking point. We were so angry in debt because we worked so hard but at the end of each month, our hard-earned money will just go directly to paying off our debts, the money that could have been used to build our future if only we were smarter back then. My husband and I jokingly told ourselves, “ at least may pambayad!”.

But the lesson we learned when we did our budget one day. We saw that there was so much amount of money that was going towards our debt. What if all this money will go to our savings? How much money can we save in 1, 3, or 5 years? We will be millionaires by then! It was really eye-opening for both of us. By the grace of God, we decided that it is time to make a fresh new start when it comes to our finances.

We started our debt-freedom journey on 1 January 2018 and we got out of debt on 3 January 2020, it was indeed a new year for our family. Despite the pandemic, God has been faithful and good to us. Now that we finished our goal, I will show you the things that worked for us in our journey to getting out of debt.


8 Steps We Did to Get Out of Debt

Step 1. Assessed Our Situation

Financial health is the current status of our finances. So before we jumped in with all the other steps of getting out of debt,  we assessed first our income vs. expenses (we actually tried not to scream when we did this), our cash flows, assets vs. liabilities, financial management, and goals. Conducting a regular financial checkup is very important for us because, through this, we will have a clear picture of where our money is going. Just like a regular health check-up, we need to know the root cause so that we can treat the symptom properly.

Step 2. Stopped Borrowing Money

We finally understood that borrowing money can be very stressful especially if we cannot keep up with the payments. It can also affect our reputation and relationships with those people from whom we borrowed money from(good thing we borrowed from the bank not from people we know). During the journey, we also developed the discipline, the control over finances  and of course we stopped using our credit cards every time we will make a purchase. We know that it can grow into a very dangerous habit of borrowing money. The interests we pay when we borrow can be detrimental to building our future and our children’s future over time.

Just as the rich rule the poor, so the borrower is servant to the lender. – Proverbs 22:7

Step 3. Made a Monthly Budget

A budget is a plan on how we will allocate our income towards our expenses for a specific period of time. It can be done monthly or bi-weekly depending on how often we receive our income. It ensures that we will always have enough money for the things that we need and for the things that are important to us. Indeed, sticking to a budget is not an easy task. But following it kept us out of debt, helped us get out of debt, and is very significant in building our family’s future.  

But don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it. – Luke 14:28

Step 4. Started Saving for an Emergency Fund

An emergency fund is not an investment. It is more of an insurance, an amount of money set aside to cover unexpected expenses. It is there to keep us from stopping debt payments or borrowing money in case of emergencies. During our debt freedom journey, we started saving an emergency fund worth P 50,000 first and once all debts were paid, we built it up to 6  months of our expenses. It truly lessens our stress, especially my husband’s during this time of pandemic. 

The ants are not a strong people, but they prepare their food in the summer; – Proverbs 30:25

Step 5. Paid Off All Debts

Although most people will pay debt with the highest interest rate first, the method that worked for us when it comes to paying off our debt is through Dave Ramsey’s debt snowball method . In this method, we listed all our debts from smallest to largest balances. After that, we attacked with intensity the debt with the smallest balance first while paying the minimum on larger debts.

“Under this method, extra cash is dedicated to paying debts with the smallest amount owed. Once the smallest debt is paid off, one proceeds to the next slightly larger small debt above that, so on and so forth, gradually proceeding to the larger ones later. The primary benefit of the smallest-balance plan is the psychological benefit of seeing results sooner.” – Undebtit

One thing we can prove with the Debt Snowball Method is that paying off debt is more of an attitude issue than a mathematical issue. That is why we pay the smallest balance first instead of the one with the highest interest rate. If we can see that we are winning against our smallest debt, we become addicted to the feeling of winning. We want to do it again and again until such time that we already pay for everything.         

Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler. – Proverbs 6: 5   

Step 6. Lived Below Our Means

In order for us to pay an extra amount of money towards our debt, we lived  below our means. We don’t need to be flashy and keep up with other people. The goal is always to be rich and not to look rich.

Living below our means is spending money less than what we earn but our needs and priorities are still taken into consideration. So it means that it’s either we cut up on other expenses or increase our cash flow by increasing our income. We did both. 

One pretends to be rich, yet has nothing; another pretends to be poor, yet has great wealth. – Proverbs 13:7

Step 7. Celebrated Every Win

Every time that we paid off an amount of debt, we made sure that we celebrated this win as a family. This built our momentum and motivation to pay off more debts. It was like a reward after a job well done. We felt good every time our efforts were well appreciated. As a family, we don’t need to have a luxurious celebration. We just ate usually in our favorite restaurant, had a korean barbecue party at home, or watched our favorite movie together with chips. The important thing was that our family’s efforts in helping to pay off the debts were recognized.

Delight yourself in the Lord; And He will give you the desires of your heart.  – Psalm 37:4

Step 8. Trusted God

As we worked our way out of debt, we knew we can’t do it without God’s help. He is our provider, our source of everything. Knowing that He is always with us  and that He will not abandon us in our journey, took a lot of stress from us because we know that we’re not alone. We were always positive, we can do this! We always thought that we can win the battle because God is faithful to all of His promises and being debt-free is one of them.  It’s true! When God said, “It’s time, it is finished!” , it is indeed finished. 

For the LORD your God will bless you as He has promised you, and you will lend to many nations, but you will not borrow; and you will rule over many nations, but they will not rule over you.  – Deuteronomy 15:6

Living a debt-free life is truly amazing for our family and I am hoping that you also make that decision for your family. Imagine a life without payments and putting the same amount you’re paying your debts right now to instruments where money can work for you and fast forward to 15 years, 20 years, 35 year if invested at 12% interest rate… amazing , right? Now that we are debt-free, we did not return to our old lifestyle because we can afford it. We choose to live a simpler, more peaceful and happy life, looking forward and preparing for our future and our children’s future. And we say, to God be all the glory and praise! We will always remember what God has done for our family. 

If you have more questions on how to get out of debt or how to take control of your finances, just fill out the form below and I will be happy to help you in the best way I can. 

Love lots, 

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  1. Very good article. I absolutely love this site. Continue the good work!

    1. Thanks, Pat.

  2. We are on our debt free journey and it’s amazing what you can do if you really stick to a plan!

    1. Wow, we are on the same page, dear! Godbless you in your journey to debt freedom!

  3. Barbara Alfeo says:

    Seems like some nice advice!

    1. Thanks Barbara!

  4. Such great advice! Living in debt creates such a strain on the family. I have a friend who has been struggling for some time now. We have helped her as have others. I plan on sharing this with her.

    1. Thanks, dear. 🙂

  5. We are struggling with this. It’s like $7k braces that come up that makes it hard to budget. It’s nice to have an emergency fund, but with so much debt and never any help with things like college tuition, we are so behind.

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