Are You In Debt?

Are you facing money problems? The early warning signs are usually very clear and include the following:

By Nimi Akinkugbe

You are completely broke long before payday; you are regularly having to borrow from friends and relations just to make ends meet; you are missing debt payments; you are coming under pressure from your bankers and other lenders; your money worries are keeping you awake at night

How did you get to this point? Is it your lifestyle? Are you extravagant? Do you make poor spending decisions? Do you feel under pressure to try to keep up socially? Perhaps you are just not earning enough to fund your current lifestyle and obligations. There are so many reasons for money problems, but the good news is that by recognizing and acknowledging the fact that there is indeed a problem, you can start to take the deliberate and necessary steps to address it.

Your attitude to your debt problems can hinder your financial recovery. If your way of dealing with it is to wish it away, remember that inaction will only make things worse. With interest, late payment penalty charges, and the attendant fees and charges you will find that almost all your money goes towards debt service. It is important to get your debt under control or at least to try to reduce it significantly.

It is important to know how much you owe if you are going to get out debt. Who do you owe? How much do you owe? What is the interest rate on your loan? To get a true picture of what you owe, list all your debts - in no particular order at first. You can list them according to amount, due dates, interest rates, your creditors; it doesn't really matter.

Be sure that you are current with the minimum payments on all your debt. If you are finding this difficult approach your creditors to discuss the possibilities of restructuring the debt in a way that enables you to repay over an adjusted period and in amounts that you can more easily afford. Failure to make timely payments will only make things worse.

Track your expenses for a month to determine exactly what comes in and what you are spending it on. Create a budget and set strict spending limits for food, transport, clothing, school fees, entertainment, and utilities. There is usually some waste lurking in the monthly budget; be realistic and honest with yourself, as you must find a way to cut back. If you can find just that little bit of extra money after budgeting for the entire essential expenses, then you can use this towards reducing your debt.

Prioritise your debt and put your bills in the order in which you want to pay them off. Ideally it should be organised according to interest rates. The higher the rate, the more you are paying beyond your actual principal so it makes sense to pay off the debt with the highest interest first. On the other hand, some people prefer to pay off smallest debts first, as this is motivating and quickly gives a sense of achievement as they systematically pay off their debt. As you start to tackle your "priority" debts, determine how much extra you can afford to pay each month over and above the minimum monthly repayments.


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