A man in debt is so far a slave. ~ Ralph Waldo Emerson
‘Owe no man anything, but to love one another: ….’ ~ Ref; Bible Roman 13:8
Debt is a major problem for a lot of people these days. The problem is, even if they know they want to get out of it, they have a hard time figuring out how to start. I know this because I’ve been there, done that, and I’ve got a T-shirt. I had a car loan, two credit cards, and personal loans.
Rising inflation rates, interest rates and higher fuel prices have pushed the cost of living higher putting the squeeze on consumers’ budgets, and many are finding it harder to keep up with their bills. According to statistics, households have incurred more debt than at any time in history. Sadly, our financial institutions continue to encourage easy credit that drives people deeper into debt. [I was amused the other after looking at an advert from one local bank that entices its clients to get a loans, by dishing out shopping vouchers]. My take; It’s Time to take Responsibility for your debt and take action to get out of debt.
Now, there isn’t one absolute way to get out of debt, and the best program should be tailored to each person’s individual situation. But if you feel like you just don’t know how to begin, this simple steps could offer you some sort of guidance — one that should be adjusted to fit your financial situation.
These steps are not aimed at people who have their finances together and are just trying to pay off a credit card or two. It’s aimed at those who have trouble finding any extra money to pay off debts, which seem to find themselves getting deeper and deeper into debt, and don’t know how to stop it.
Out of my own experience, I’ve come to learn that personal finance is 20% head knowledge, and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.
Disclaimer: The contents of this article do not constitute professional advice. I suggest you find a qualified advisor. My only qualification is that I’ve made great strides in getting my finances under control, in starting an emergency fund, in paying all my bills on time, in not getting further into debt, and in eliminating my debt (I should be done by mid this year). These steps are based on my own personal experiences, and on the large number of books and websites I’ve read.
The Simple steps to Dealing with the Debt Monster
1) Acknowledge the problem.
The first step is admitting you have a problem. All you have to do is say to yourself, “I have a problem with debt. I got into this because I spend money I don’t have. But I believe that there’s a way out, and I can do this. I can control my spending, make a plan, and slowly get out of debt.” That’s a major step. Now set aside just an hour every week to deal with your finances — make it a set day and time, and don’t let yourself miss this appointment.
2) Stop digging.
If you’re in a hole, the first step is to stop digging, For 30 days, see if you can stop any non-essential spending. If you have a major problem with credit cards, shred them up. If you’re not so bad with credit cards, at least put them away and don’t buy stuff with them for one month. Avoid future debt. Say no to new purchases. Avoid impulse buying. Don’t even go to stores, especially malls. Throw away catalogs. Don’t buy now and pay later. What’s essential? Obviously your bills, house rent, auto, fuel, groceries … that kind of stuff. Non-essentials? Clothing, CDs, DVDs, books, magazines, gadgets … you know what I mean. Just 30 days. After that, you can decide how much to spend on these things.
3) Make small cutbacks.
Take a look at things you normally buy and see if you can cut out a few of them, or spend less on them. Groceries? See if you can buy them in grocery shops at your local market as opposed to supermarkets. Sometimes in the grocery, I have to ask myself, ‘Do you really need to buy this? Coffee? Make it yourself at home instead of buying it out. Lunch? Try packing it to work instead of eating out. Add up what your cutbacks will save you this month. For men, Learn to cut hair. Ladies! Try going for hair dos with low maintenance costs.
4) Start a Contingency fund.
This basically means setting up a savings account, if you don’t have one already, for emergency purposes… Now take the amount you saved in Step 3 (and even in Step 2 if you think you can make them last for awhile) and set up a regular standing order or a direct debit from your account every month that goes towards this contingency fund savings account for this amount. It’s highly recommended that before you start paying off debt, you have at least a small emergency fund. I would urge you to aim at 50,000 Kenya shillings at first, and you can grow that later. The reason: if unexpected expenses come up, and you don’t have a contingency fund, you will skip your debt payments to pay for the unexpected expenses. The contingency fund protects your debt payments.
5) Take inventory.
OK, this is a step that we don’t like to take. But take a deep breath. You need to do this. Remember what you said in Step 1? You can do this. Get to set up a simple spreadsheet. In one column, list all of your debts — credit cards, medical bills, car loan, etc. You can leave out your mortgage, but put everything else. In the second column, put the amounts you owe for each debt. In the third, put the minimum monthly payment, and put the percentage interest in the fourth column. Total up the second and third columns to see your total debt owed and how much you have to pay, at a minimum, towards debt each month.
6) Make a spending plan.
We don’t like to do this step either. But it’s not going to be as painful as we think. In this sixth step, set up another simple spreadsheet. In one column, list your monthly bills (rent or mortgage, car payment, utilities, cable TV payments, etc.) — everything that is a regular monthly expense. Then list variable expenses (things that change every month) like groceries, gas, eating out, etc. Later you should add irregular expenses (stuff that comes up once in awhile — less than once a month) such as auto and house maintenance, clothing, insurance, etc. But we won’t get into that now, as we want to keep it simple. In the second column, put down the amounts for each. Be sure to put enough for things like gas and groceries, as you don’t want to be short. Be sure to also include your minimum debt payments and your contingency fund deposit. Now, list your income sources and monthly amounts. There. You’ve got a temporary spending plan (you’ll want to add the irregular expenses later). Now, if the expenses are greater than the income, you’ll need to make adjustments until the expenses are equal to or less than the income.
Remember: ‘Use debt as an opportunity for growth. If debt has beaten you down, why not learn from the experience? Change your measuring stick. Money is not the measure of all things. Remember, you live in a society, not an economy.’
I hope you find this article helpful. [Watch Out for Part 2]. I’d love to hear from you, please share your experience of dealing with personal debt.