Debt

Some time last week, a group of us sat outside the kraal waiting for our next lecture. While deep in conversation, one of the girls said: Can I give you guys some advice?” The rest of us responded: “Sure.” She continued: “Don't open a clothing account because you will end up in debt.” The word DEBT reverberated in my ears like a scratched CD playing on a stereo and I started thinking. . . 

            Debt is an increasing problem today. Millions of people find themselves losing everything because of a number of reasons apart from over spending on clothing accounts. So what simple steps can you take to eliminate debt if you are in that position? Well, there are a number of reasons but we will consider only a few and they are the following: 

            The first move should be to establish a working relationship with a reputable bank. If you must borrow, this is where you will likely get the best interest rate. If your bank refuses you a loan, it is probably doing you a favor. Remember, it is in the business of lending money and will lend it to you if it seems reasonable.

            Second, you must start paying off the debts in some organized way. On paper, project your anticipated personal cash flow over the next 24 months. Be realistic. Include every bit of income you expect to have. Then list everything that must be paid. Include some allowance for items that you cannot even think of right now. List the debts in order of priority. Then allocate your money on a fair basis so that each debt receives at least some payment. Set a target payoff date for each debt.

            In conjunction with this plan, consider where you might reduce costs. Debt reduction always requires some sacrifice. Can the grocery bill be shaved by bargain shopping? What cheaper substitutions can be used in meal planning? Can your living standard be reduced? Can some luxury items be enjoyed less often? Sometimes we just have to be ruthless with ourselves. Certain expenses can be moved from the “necessities” column to the “luxuries” column.

            Once you have a plan worked out on paper, discuss it with your bank loan officer. He will be impressed when he sees that you mean business. He may be able to show you how to improve the plan. He may even suggest a debt consolidation loan. If so, be sure to consider the interest rate and the length of time over which the consolidated debt is to be repaid. It will usually mean smaller payments over a longer period of time. But do not be tempted to use the debt consolidation to borrow more money.

            Obviously, to overcome debt successfully, effort is needed. However, more than that is required. Once you have eliminated your debt, you need to find ways to keep your life free from debt forever. In other words, you should not go back to your old habits. It will not be easy but with endurance you will make it happen!