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Dig yourself out of debt in 2016

Columnists
Forty-year-old Ambrose Marima had, as one of his 2015 New Year resolutions, clearly written down in a diary at the beginning of this year: “To get rid of all my debts by end of the year”.

Forty-year-old Ambrose Marima had, as one of his 2015 New Year resolutions, clearly written down in a diary at the beginning of this year: “To get rid of all my debts by end of the year”.

by Clive Mphambela

However, with the year coming fast to a close, he is still mired deep in debt. “Things have not balanced at all this year,” he says to himself.

Sure as the sun rises again tomorrow, one of his personal resolutions again for 2016 will be: “To completely get out of debt.”

Ambrose is probably not alone in this situation. Indeed, many people are moaning the current liquidity crunch. Some have lost their jobs as more companies closed shop.

Many have resorted to borrowings to make ends meet, but the result may not have been good. A number of people have found themselves unable to cope with the growing debt burden.

It is easy to fall into debt, especially if one is supporting a family with so many basic family needs.

However, just because you find yourself deep in debt now does not mean that you have to stay permanently in debt.

While it is not easy, you can literally dig yourself out of any debt situation, provided you start on a committed action plan for doing so.

Whether you are in serious debt trouble or just want to pay down some long outstanding bills, it is important to have a basic plan for achieving a debt-free and stress free 2016.

Here are a few tips on how you can get started.

Take stock of your current debts and re-do your budget

This is the first step. List your outstanding obligations down and rank them by amount, length of time owing and why you incurred the amount and so on.

Knowing how and why you accumulated the debt in the first place will help you in your quest to find the right solutions to get out.

Also note down any amounts that you are owed by others and compare this with what you owe.

As well, assess how much of your current income is going towards servicing your current obligations.

This will help you figure out how you can reduce expenditures in some areas to create financial space to repay your debts.

Once you have your priority debts listed down, you can begin to implement a debt reduction plan in line with your budget.

Avoid taking on new debts

Clearly, the surest way of one being able to pay down one’s debts is to avoid taking on new ones.

Considering that one is already over the top in debt, it makes perfect sense to start a debt reduction plan by stopping the accumulation of new debt.

Don’t take on a new debt to repay an old one. This can only lead to getting trapped in a debt cycle.

Negotiate with your creditors before defaulting on payments

If you think you cannot make an installment, call the bank manager or the people you owe money and ask for a bit more time.

This is called debt rescheduling. You can also renegotiate the terms of your debt. Negotiate outstanding interest and, if possible, ask for a lower rate of interest.

If you do this before actual default happens and you are specific and credible in your repayment plan, your creditors will often be more willing to work with you in your debt reduction plans.

Cash-photo

Once you have agreed on and signed off on new terms, be honourable. Stick to the agreed terms.

Pay off high interest rate debts first

If you have multiple debts, prioritise them and start paying off the high interest debt first. Work on paying down that bank loan that charges the highest interest rate first and so on.

Set a goal to pay a sufficient amount towards that, reducing that high cost debt each month, while putting some minimal payments towards your other loans and obligations.

When that high interest debt is paid off, apply the extra money released to the debt with the next highest rate and so on and so on. This strategy minimises your interest costs and enables the debts to be repaid at a faster rate.

Avoid late payment charges

Sometimes people will incur extra charges on their obligations by simply not making repayments early. Pay obligations early to avoid late payment penalties that simply add onto your debt burden. Penalty interest can result in you remaining in debt.

Seek professional advice, tell and involve someone

If you can, find a professional debt counsellor who can help you come up with a debt management strategy. Also speak to a colleague that you trust, or any other person who can be a senior mentor in business, a church elder or someone that you trust and look up to.

This can be a useful way of dealing with a chronic debt problem. If you are married, it is advisable to discuss the problems with your spouse so that you can jointly set objectives.

l Clive Mphambela is a banker. He writes in his capacity as the advocacy officer for the Bankers’ Association of Zimbabwe (BAZ). BAZ expressly invites players in the MSME sector and all other stakeholders to give their valuable comments and feedback related to this article to him on [email protected] or on numbers 04-744686, 0772206913