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If your way of
dealing with debt problems is to ignore them or wish them away,
remember that inaction will only make things worse

Are you facing money problems? Some of the early warning signs are usually clear and may include the following:

• You are completely broke long before payday

• You are missing debt payments

• You are regularly borrowing from friends and relations just to make ends meet

• You are coming under pressure from lenders

• Your money worries are keeping you awake at night

So how did you get
to this point? Was it your lifestyle? Are you extravagant? Did you make
poor spending decisions? Were you trying to keep up socially? Perhaps
you are just not earning enough to fund your lifestyle and obligations.
There are so many reasons for money problems but the good news is that
it is possible to turn your financial life around. By recognizing and
acknowledging the fact that there is indeed a problem, you can start to
take the necessary steps to address it.

Your attitude to
your debt problems can hinder your financial recovery. If your way of
dealing with it is to wish it away, remember that inaction will only
make things worse. With interest, late payment penalty charges, and the
attendant fees and charges you will find that almost all your money
goes towards debt service. It is important to get your debt under
control and aim to clear or at least reduce it significantly.

Make a list of all your debts

To get a true
picture of what you owe, list all your debt – in no particular order at
this stage. You can list them according to size, due dates, interest
rates, by whom you owe – it doesn’t really matter. It is important to
know how much you owe if you are going to get out of it.

Be sure that you
are current with the minimum payments on all your debt. If you are not,
contact your creditors to discuss your payments. It may be possible to
restructure the debt in a way that enables you repay at amounts you can
afford. Staying away will only make things worse and your loans will be
called in with dire consequences.

Create a Budget

Track your expenses
for a month to determine exactly what comes in and what you are
spending it on. Determine how much you need to spend on food,
transport, clothing, school fees, entertainment, and set strict
spending limits. There is usually some waste lurking in the monthly
budget; be realistic and honest with yourself, as you must find a way
to cut back. If you can find just that little bit of extra money after
budgeting for your essential expenses, then you can use this towards
reducing your debt.

Make every effort
to stop the bleed. Try not to incur any additional debt. It is tempting
to continue to use your card to make more payments but even the
smallest payments add up and increase your debt. Naturally you may have
to live below your comfort level for a time and will certainly have to
do without some luxuries, but it will be well worth it in the end.

Prioritise your debt

Put your debt in
the order in which you want to pay it off. Ideally it should be
organised according to interest rate. It makes sense to pay off high
interest debt first as this will maximise your debt payments and reduce
the amount of overall interest that you pay. Ultimately, the higher the
rate, the more you’re paying beyond your actual principal. Some people
prefer to start by paying off their smallest debt first as this quickly
gives a sense of achievement and can provide a significant boost as you
systematically pay down your debt.

Bear in mind that
the most important debts aren’t necessarily the largest. These are the
ones where serious action can be taken against you if you don’t pay
what you owe, such as rent or mortgage repayments, secured loans and
utility bills. If you don’t sort these out, you could be disconnected
from utilities, have problems with your landlord or even face a
repossession of your home.

Make extra payments

As you start to
tackle your “priority” debt, you will need to determine how much extra
you can afford to pay every month over and above the minimum monthly
repayments. If your first debt has a minimum payment of N100,000 per
month, and you have freed up N20,000 in your budget for an extra
payment, your total payment is N120,000. Continue making minimum
payments on your other debts and then move on to the next debt on the
priority list. The idea is that every time you pay off some debt, you
are in effect “freeing” up some cash to tackle the next one.

Debt has become a
necessary part of life for some. When applied properly, it should
provide greater opportunities and enhance the quality of life. For
others who have borrowed excessively and for the wrong reasons, they
could face distressing consequences. With careful planning, and a more
disciplined and systematic approach to money management, you can take
control of your finances and deal with your debt.