How to get out of the debt cycle and gain financial freedom

Many of us fall into a debt cycle due to high-interest loans, living beyond our means, or unexpected emergencies. The cycle continues when we rely on new debt to pay off old debt, making it harder to achieve financial stability. Without a clear repayment plan, we end up paying more in interest and struggling to make ends meet.

Debt can feel like a never-ending trap, but with the right strategies and financial discipline, we can break free and work toward long-term financial freedom.

1. Assess all debts

The first step to getting out of debt is to understand exactly how much you owe. Many people avoid looking at their total debt because it feels overwhelming, but facing the numbers head-on is necessary for progress.

What to Do:

• List all outstanding debts, including:
  ✅ Loan balances
  ✅ Interest rates
  ✅ Minimum monthly payments
  ✅ Due dates
  
• Identify which debts have the highest interest rates (e.g., credit cards, payday loans) and which have the lowest.
  
• Use a debt tracker or an Excel spreadsheet to stay organized.

Having a clear big picture helps us develop a repayment strategy that works.

2. Prioritize high-interest loans

Not all debts are equal, some grow much faster than others. High-interest loans (such as credit cards and payday loans) increase the total amount you owe quickly because of compounding interest.

What to Do:

• Focus on repaying debts with the highest interest first to reduce long-term financial burden.
  
• Pay at least the minimum amount on all debts to avoid late fees and penalties.
  
• Allocate extra money to the highest-interest debt whenever possible.
  

Example:
If you have PHP 10,000 extra per month, applying it to a 30% interest loan instead of a 10% car loan will save you thousands in the long run.

3. Follow the snowball or avalanche method

Choosing the right debt repayment strategy can make the process easier and more motivating.

The snowball method:

 ✔ Pay off the smallest debts first, regardless of interest rates.
✔ Provides quick wins and motivation to keep going.
✔ Good for those who need emotional encouragement to stay committed.

The avalanche method:

 ✔ Pay off the highest-interest debts first to save the most money.
✔ Reduces overall interest costs and debt repayment time.
✔ More cost-effective but requires patience.

Which One to Choose?

• If you need motivation, go for the Snowball Method.
  
• If you want to save the most money, choose the Avalanche Method.
  

If you choose Snowball, you’d pay off the PHP 5,000 medical bill first, then move to PHP 10,000 credit card debt.
If you choose Avalanche, you’d attack the 30% credit card first, then move to the 15% loan.

4. Reduce unnecessary spending

Spending less means you have more money to repay debt faster. Many people don’t realize how small daily expenses add up over time.

What to Do:

• Cut out non-essential expenses like eating out, streaming subscriptions, and luxury shopping.
  
• Create a budget that prioritizes debt repayment.
  
• Use the 50/30/20 Rule:
  
  • 50% for needs (rent, bills, food)
    
  • 30% for wants (shopping, entertainment)
    
  • 20% for savings and debt repayment
    

Example:
If you spend PHP 100 per day on coffee, that’s PHP 3,000 per month, money that could go toward paying off debt faster.

5. Increase your income

Sometimes, cutting expenses isn’t enough. The fastest way to clear debt is to increase your cash flow.

What to Do:

• Start a side hustle: Freelancing, selling online, tutoring, or ride-sharing.
  
• Sell unused items: Clothes, gadgets, or furniture you no longer need.
  
  

Example:

• A side gig earning PHP 5,000 extra per month could cut down a PHP 50,000 loan in 10 months instead of 3 years.
  

6. Avoid taking on new debt

Breaking free from debt is impossible if we keep borrowing more. The “one last loan” mindset keeps us trapped in the cycle.

What to Do:

• Stop using credit cards unless necessary.
  
• Avoid payday loans with high interest rates.
  
• Build an emergency fund (even PHP 1,000 per month) to avoid borrowing in the future.
  

7. Negotiate with lenders for better terms

Many people don’t realize they can talk to their lenders to get better repayment terms.

What to Do:

• Ask for a lower interest rate if you have a good payment history.
  
• Request loan restructuring to extend the term and reduce monthly payments.
  
• Look into debt consolidation: combining multiple loans into one with a lower interest rate.
  

Escaping the debt cycle requires discipline, commitment, and financial awareness. While the journey may be challenging, every small step toward debt repayment brings us closer to financial freedom.Breaking free from debt takes time and effort, but by staying committed to a repayment plan, we can achieve financial stability and regain control over our future.