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There are many different types of debt in life, and not all debt is the same. Some debt can be smart investments, such as student loans or home equity loans. These debts can yield greater financial returns in the future. However, non-investment debt, such as consumer loans and credit card debt, is often a financial burden in both the short and long term, and needs to be managed carefully.
No matter how much debt you have, it is important to have a clear plan for paying it off. As interest rates increase over time, the amount you have to pay can quickly become out of control. Therefore, when dealing with debt, it is best to pay it off as quickly as possible.
A simple example of how to pay off debt quickly is to apply the Power of 50 financial formula. Suppose you have a debt of 100 million VND with an interest rate of 18% per year. If you only pay 60,000 VND per month, it will take you 8 years to pay off the debt, and you will end up paying a total of 176 million VND, almost double the original amount.
However, if you pay an additional 50,000 VND per month, you will pay off the debt in just 3 years, saving you more than 1,800 million VND in interest. This proves that paying off debt early saves you a lot of interest in the long run.
In Vietnam, banks and credit institutions have rules to help manage debt properly. A common rule in mortgage lending is the 28/36 Rule, which states that housing payments should not exceed 28% of your gross monthly income, while total debt, including housing, utilities, credit cards, and other loans, should not exceed 36% of your monthly income.
However, in some cases, loans from banks or financial institutions may allow for a higher debt-to-income ratio, but you should note that the higher the ratio, the greater the risk of financial stress.
In Vietnam, there are many popular types of loans suitable for different financial purposes:
Debt management and spending management are important factors in achieving personal financial stability. By clearly identifying debts, applying smart debt repayment strategies, and managing debt properly according to rules such as 28/36, you will not only reduce your financial burden but also help build a stable and sustainable financial foundation.
Start today to better manage your finances, avoid debt and achieve your future financial goals.
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