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Published: 2017-07-19   

Let’s talk about loans: Learn about your limits

One of the biggest problems of OFWs in the UAE, and perhaps elsewhere in the world, is indebtedness—pagkakautang.

One of the biggest problems of OFWs in the UAE, and perhaps elsewhere in the world, is indebtedness—pagkakautang.

If you don’t watch and track where your money goes and the things you sign up for—it’s so easy to fall into a debt trap. Once upon a time, you were just a happy, excited new expat signing bank sheets: The next thing you know, you are faced with a whopping five-digit debt.

If you find yourself in that situation, huwag mag-alala. May solusyon naman ang problema na ‘yan. All you have to do is: Accept that there is a problem, and face it.

Seek professional help and learn about your payment options from your bank. Before you know it—you’re debt-free (best feeling in the world)! Mairaraos rin yan.

On the other hand, you know how the cliche goes, “prevention is better than cure”.

Madaling mag-advise na “live below your means and do not spend the money you do not have” (Budgeting is a topic we will be talking about soon). Pero realistically speaking, minsan wala nang choice kundi mangutang.

Ang importante, you have to know your limits. Keep track of your expenses and your loans, kabayan.

Paano mo nga ba malalaman na “baon na baon ka na sa utang” at nasa danger zone ka na?

One simple way to find out is to calculate you debt-to-income ratio. Kailangan may certain percentage lang ng income mo ang napupunta sa pagbabayad ng utang—hindi pwedeng lahat.

Here’s how to calculate your debt-to-income ratio:

  1. List down all your monthly loan payments, including your minimum credit card payment kung meron man. This may also include your car loan, personal loan, etc.
  2. Isali sa listahan ng mga utang na binabayaran ang monthly rent sa tinitirhan mo ngayon.
  3. I-add ang mga ito. Label the sum with “Total Monthly Loan Payment”.
  4. In a new sheet, list down all your sources of income. This may include your entire monthly salary plus average commission or average overtime pay. Lahat ng pumapasok na pera sa’yo kada buwan.
  5. Add them all up and label the sum “Total Monthly Income”.
  6. Divide Total Monthly Loan Payment (TMLP) with Total Month Income (TMI). (TMLP / TMI)
  7. Multiply the answer by 100. This is the percentage (%) or your debt-to-income ratio.

Here’s what your debt-to-income ratio means, according to Atty. Barney Almazar’s Essential OFW Guide to the UAE:

36% or less: The healthiest debt load for the majority of people. Consider this your limit and avoid incurring more debts.

37% – 42%: Okay ka pa, pero bawasan ang utang hangga’t maaari para gumanda ang financial position mo.

43% – 49%: Nanganganib ka na, kabayan. Maging masigasig sa pagbabayad ng utang. Kung kayang lakihan ang bayad sa utang, go.

50% or more: RED ALERT! Aggressively pay off your debts. Don’t hesitate to seek professional help.

Source: Essential OFW Guide to UAE by Atty. Barney Almazar

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