The Festivities are long gone, and the year is slightly old, albeit just in the second month. But allow me to ease you into the year. As with many new things, a new year carries renewed hopes and dreams. It’s a chance to begin again, start afresh, clean slate. I am a big fan of hope, it propels us to be better, to do better.
For some of us, the demons of the previous year have walked hand in hand with us into the new year. I am talking about the consequences of some of the bad habits we have acquired in the past. You’ve probably crossed into the year with debt that you have no idea how to repay, maybe your body is not where it ought to be in terms of weight. Maybe you just cannot shake off the feeling of anxiety, that things are about to get worse before they get better.
Worrying about the things you cannot change is, of course, a waste of time and so I would focus on the things that we can change. Specifically, because we tackle most things personal finance, I will talk a little about debt.
If you live in or have been to Nairobi, you have probably encountered the “matatu culture” Matatu is the name we have given our public transport vehicles. Any self-respecting matatu will have been covered with appropriate amounts of graffiti and will be adequately accessorized with a sound system that plays music at such high volume to ensure its passengers experience temporary hearing impairment every time the alight from the vehicle. Recently in one of my commutes in a matatu, I read an interesting quote that said “Dawa ya deni ni kulipa si kubadilisha njia”. Loosely translated it means “The cure for debt is repaying it not changing your usual route to avoid your debtor”. I couldn’t help but smile at the profound truth in that quote, mostly because surely in a few days you will run out of routes to use!
On the real though, if you are in debt especially where it paralyzes you, you need to urgently plan how to get yourself out of that situation. I have witnessed firsthand how unchecked debt can clouds a person’s judgment and eats into their self-esteem. I know that it destroys self-confidence and one becomes blind to opportunities around them because of their perceived economic limitations. It is a disempowering position to be in.
Stop accumulating more debt
Where you are in debt that you are not able to manage, especially debt you have accumulated because of consumption e.g. buying furniture and household goods, money used for entertainment and holidays, my first recommendation is that you stop getting into more debt. Most of the time we think that living within our means is cliché but, it is the best cure in this case. Ensure that you live within your income as you budget to have some of it go towards paying off your debt.
Make a list of all your debts
Secondly, make a list of all your debts. This will give you visibility of how big a mess you have made. This is a daunting exercise, especially because when you write down and sum up all the amounts involved you may become overwhelmed. As human beings we tend to downplay undesirable outcomes and seeing the numbers in black and white, will drive the message home. It is also important to note how much interest is payable on each loan. List your debts in order of the most punitive interest charge to the ones that don’t have any interest charge.
Pay your debts, proportionately
Apportion the amount of income you have in such a way that the most punitive debt is given the biggest portion. This will assist in managing the debt rising to interest and penalties. I am from the school of thought that subscribes to paying something small towards each interest-bearing debt, while you negotiate with the debtors that do not require payment of interest, for a longer grace period.
Once you complete one debt, add the amount that you used to pay the cleared debt towards clearing the balance of the debts.
Personal finance experts that you put aside at least 20-30% of your income towards debt repayment. I agree with this because as you are work towards becoming debt-free, the least pressure you need is to feel like you need to get into debt to support your lifestyle. As in most important goals in life, discipline is key.
Explore ways to increase your income
This is especially critical because you need all the extra resources you can get to attack the debt. It is easier said than done, especially when you think of your situation as insurmountable, self-doubt reigns as you even try not to see yourself as a failure. It is important to keep a positive and upbeat tempo during this process as believe it or not, many people have sunk into depression at this point.
Keep busy to avoid feeling sorry for your predicament and you will come out the wiser and richer.
Build an emergency fund
Part of the reasons that we find ourselves indebted is because we do not have an emergency fund to deal with life’s curveballs. Please refer to my earlier blog Where to build your Emergency Fund It has some rich insight on the importance of an emergency fund.
Being heavily indebted is not the end. Many have overcome this challenge and so can you. Remember staying positive through the turmoil will go a long way towards you riding the storm and emerging victorious. Begin the journey today, I am rooting for you!