When it comes to saving, Filipinos are efficient—91% claim they have enough savings to meet their financial needs for at least 5 years, and another 46% claim to have started their saving habit before the age of 30. Despite this optimistic outlook, more than 80% also admitted to having high levels of personal debt, with a third relying on a line of credit to get through daily living expenses.
Unfortunately, while getting out of debt should be a top priority, it begs the question: should you be prioritizing it over building an emergency fund? The short answer is, “It depends.”
When to prioritize paying debts
Paying your debts off first is the best option for high-interest debt, like credit cards. This is because any savings you manage to gain won’t be enough to offset the debt, especially with compound interest in play. With the monthly interest rate for a card ranging from 2.00% to 3.54%, a debt of P20,000 can jump up to P20,708 in just a month, and up to P21,441.06 in two months, and so forth.
Aside from the financial burden, debt can have an impact on your psychological and emotional well-being. A 2019 study found that over 40% of Americans find it difficult to talk about debt with their friends and family, with more than 40% of employees distracted by financial problems, spending 3 hours or more dealing with money matters while at work.
Here are some ways to settle your outstanding debts: