“The man who never has money enough to pay his debts has too much of something else.”
-James Lendall Basford
While debt is sometimes necessary to fill financial gaps, address emergencies or take advantage of business/investment opportunities, debt should never become our only means of survival.
Do you feel you are being overweighed by debt? Are you indebted to several people? Are there several people harassing you to repay their loans? If you answered yes to any of these questions, we advise you to immediately take the following steps:
- Target to repay the most expensive loans within a short period (choose shorter loan tenors) or the loans that will lead to broken and irreparable relationships.
- Review your monthly expenses and income. If your monthly expenses are more than two-thirds of your income, it is time to take a pause and reduce your expenses.
- Break down your expenses into needs and wants. Try and identify leakages and block those leakages. Review the wants and scrap them. Review the needs and reduce the spending limits on them. For example if your need is food, instead of eating out and spending N10,000 for a meal you might want to try cooking at home for N1,000 or looking for a less expensive place to eat and shop. You might want to consider spending less on very expensive designer labels to spending more on less expensive labels. You might also want to consider renting a less expensive home. The summary is to live according to your income.
- The balance of a third of your income should go to an interest yielding savings account or a profitable investment that is not too risky. Out of the two-thirds available to meet your needs, use a portion of it to clear your financial obligations (i.e. loan repayments and accrued interests).
- Try and consolidate all your loans into a few sources.
- Have a discussion with your money lenders on restructuring the balance of your loan based on the portion of your income you have apportioned to loan repayments. Discuss the time it will take for you to clear the loan, the amounts you are willing to repay each month and keep to the agreed repayment terms.
- Do not obtain more loans or increase your expenses during this period.
- Do not be afraid to tell extended family members or dependents to try and fund their needs from other sources till you become more financially stable.
- Also consider how to generate more income to settle your financial obligations either by changing jobs or starting a new business idea that you are 70% certain would generate enough to cover the business expenses and make some profit.
- Do not borrow additional funds for a risky business venture or any business that you have no experience with. As the business is growing and you understand the market better, you can then borrow more to support the business after clearing all outstanding loans.