Debt, whether personal or general, is a subject often avoided in conversations and can place individuals in challenging circumstances.
It can weigh an individual down, and trample on his ambitions.
For instance, Tunde Ajayi’s debt saga commenced as he found himself jobless, an unfortunate casualty of the unforeseen downsizing that struck his company. The loss of his steady income dealt a severe blow, forcing him to exhaust his savings to keep up with his daily expenses.
As months passed, Ajayi’s financial reserves dwindled. The weight of his predicament pressed upon him which led him into debt situation. As he grappled with how to pay his bills, creditors, inundated him with ceaseless phone calls.
To avoid unpleasant debt situations, experts have said taking right financial decisions is useful.
Money Africa provides valuable tips that you can implement to overcome debt and make progress toward achieving financial stability.
Assess your debt
Start by gathering all your financial statements and make a list of all your debts, like loans from the bank, loans from family and friends, and any other outstanding balances. Note down the interest rates, minimum payments, and due dates for each debt.
Create a budget
Establish a realistic budget to track your income and expenses. Identify areas where you can reduce optional expenses like your wants and allocate more funds towards debt repayment. Consider using budgeting tools or apps to help you stay organised and monitor your progress.
Prioritise debts
Determine which debts have the highest interest rates or the largest outstanding balances. Focus on paying off these debts first, as they are costing you the most in interest charges. Make minimum payments on all debts while allocating extra funds towards the highest-priority debt.
Increase your income
I know it can sound insensitive to say this, especially in the type of economy we live in, assuming that you live in Nigeria. Nevertheless, there are lots of opportunities everywhere; we just have to dig deep. What are the ways you think you can increase your income? Are you able to take up a part-time job? Do that! Do you have skills that you think people will pay for? Monetise it! or better still, sell valuable things that are lying idle around your house, instead hoarding them! The additional income can be directly applied towards debt repayment, accelerating the process of becoming debt-free.
Cut expenses
This is the most difficult step because you are already used to your lifestyle. However, the truth is that there are lots of things that you can live without, at least until you have paid off your debt. Review your expenses and identify areas where you can cut back. This might involve reducing spending on your wants, renegotiating utility bills, finding more affordable alternatives for services, or downgrading certain lifestyle expenses temporarily.
Stay motivated and track progress
Paying off debt takes time, so it is important to stay motivated along the way. Celebrate milestones and track your progress regularly. Seeing the debt balances decrease can be encouraging and reinforce your commitment to financial freedom. I’m rooting for you.
Plunged
Narrating his debt ordeal, a Lagos freelancer, Ifeoluwa Adewale, said he found himself in a distressing situation after lending a substantial amount of money to a friend who failed to repay.
He narrated, “To cover the debt, I borrowed half of the required sum from my father and used the other half from my savings intended for travel. Initially, my friend paid back half of what was owed, but unfortunately, my so-called friends introduced me to gambling, and I ended up losing all the money. As a result, my father started calling me, demanding repayment of the money he had lent me. To manage the escalating debt, I sought help from different people, assuring them that I would repay them. The weight of the debt consumed my thoughts, leaving me emotionally unstable and necessitating visits to the hospital for check-ups.
“In a situation that I had never encountered before, I found myself utterly distraught as a man. Waves of despair, coupled with suicidal thoughts and a sense of depression, washed over me for weeks. However, a stroke of fortune came my way when I secured a job opportunity in the United Kingdom.”
He adds that, “Recognising the gravity of my financial predicament, my family rallied together and managed to gather 90 per cent of the required funds. To maintain the facade I had inadvertently created, I had falsely claimed to possess N5m in savings.
“With the majority of the funds taken care of, the burden fell on me to raise the remaining portion, a daunting task that sent me into a frenzied state of pursuit. Determined to honor my commitments and settle my debts, I tirelessly searched for ways to gather the required N3m within a tight timeframe of three days.
“Despite my relentless efforts, I could only accumulate N2m, to summarise, the weight of the debt I carried took an immense toll on me, impacting me not only emotionally and physically but also spiritually. Thankfully, I can now breathe a sigh of relief, as I am left with only a few thousand to repay, gradually regaining my equilibrium as the burden of debt slowly diminishes.”
Redesign loan terms
An auditor at Ernst and Young, Oluwafemi Ososan, said managing personal debt effectively is crucial for maintaining financial stability.
He says, “If you are already in debt, you redesign the loan terms by meeting with the loan provider to design the loan terms in ways you will be able to meet up. For instance, spreading the loan repayment over a period rather than waiting to pay back the money at the end of the loan period.
“It is important to reassess the loan terms. Meeting with your loan provider and discussing possible modifications can help design a repayment plan that you can comfortably meet. For example, spreading the loan repayment over a longer period can reduce the monthly burden. Moreover, it is crucial to avoid taking on additional loans while trying to manage existing debt. By preventing the debt from accumulating further, you can focus on repaying the current obligations.”
He adds that, “When considering loans, it is crucial to assess your ability to handle the financial responsibility. Only take on loans that you can comfortably repay without straining your financial situation. Negotiating the terms of the loan before accepting it is also advisable. If possible, seek the assistance of professionals who can guide you through the negotiation process. Additionally, exploring alternative ways to finance your needs can be a smart approach. By finding creative solutions that don’t involve incurring debt, you can achieve your goals without further financial strain.”
Repayment plan
A tax practitioner in KPMG, Habeeb Olaosebikan, advises that having a standard repayment plan is essential.
He says, “A borrower should map out a standard repayment plan to facilitate the fulfillment of financial obligations. This payment plan can be agreed upon with the lender. It can take the form of a direct debit from the bank or one’s employer, setting up a personal or joint savings scheme, and so on.”
Similarly, a financial advisor, based in Lagos, Oreoluwa Ayorinde, says resolving personal debt necessitates determination and making necessary cuts in expenses for the duration of the debt repayment.
He says, “One effective approach is to meticulously record all outstanding debts, incoming money, expenses, and savings. By creating a comprehensive breakdown of expenditures, it becomes possible to allocate funds towards clearing the debts in a systematic manner.”
An Ogun State private technician, Wale Kabiru, advises that it is essential to set an amount that should go towards the debt servicing for a period of time.
Kabiru says, “To assess your financial status and manage your debts effectively, evaluate your income, expenses, and obligations. Identify and prioritise your debts based on interest rates and potential consequences.
“Determine a timeframe and allocate a realistic amount towards debt servicing while considering essential expenses and maintaining an emergency fund. Regularly review and adjust your plan as needed.”
Avoid more debts
Olaosebikan emphasises the need to avoid more debts.
He says, “ One shouldn’t take additional debt as an instrument to finance another debt obligation as it keeps the debt cycle breathing with an additional cost of financing the debts (for instance, cost of sourcing for another loan, risk of higher interest repayment, among others).
“It is not ideal to continually take on more debts to finance existing debt obligations. By doing this, the debt cycle is likely to trap borrowers with increased financial obligations.”
Olaosebikan adds that, “This can take the form of additional costs of financing existing debts, for instance, the cost of sourcing for another credit facility, the risk of higher interest repayments due to varying terms and conditions of borrowings, and so on.
“Thus, achieving financial goals becomes threatened by the financial stress inherent in dealing with growing debts.”
