Personal Finance: Getting Out of Debt
“The only man who sticks closer to you in adversity than a friend is a creditor”- Unknown
There is a freedom that lack of indebtedness brings that is simply indescribable.
It was Henry Wadsworth Longfellow who said, “He looks the whole world in the face for he owes not any man”. You won’t be afraid of running into your creditors. You won’t be scared of opening your door when you hear a knock. You won’t constantly watch your back while driving. You won’t get panic attacks when someone calls your name on the road.
If you experience any of those signs aforementioned, you may be a debtor. Being in debt causes mental, physical, emotional and marital stress. My experience was at a time when it was so easy to get into debt. Financial institutions were willing to lend to individuals. There was the Naira credit card which was new at that time and people lapped it up. There were payday loans and salary advances. You could get consumer loans to purchase household appliances just for the asking. I knew stores that would allow you to walk away with gadgets if you could drop post-dated cheques. If you were a salary earner, you had organizations that were willing to throw money at you. Easy credit oftentimes gives birth to uneasy debt. Henry Wheeler Shaw said, “Debt is like any other trap, easy enough to get into but hard enough to get out of”.
Well, I got out and I believe everyone who desires to live a debt-free life can also do the same. With debt hanging on my neck like the sword of Damocles, I followed the following strategies and within 2 years, I was free.
1. Be very honest about your situation and take stock
You can lie to others but you’re in real trouble if you lie to yourself. Many people lie to themselves. They under-emphasize the magnitude of the problems they’re facing. Sometimes, they rationalize them. The very first step is to come clean. Admit that you’re in trouble and you need help. Take stock of what your current indebtedness is. They should be clearly written without ambiguity. To whom do you owe money and how much? When is the timeline for repayment? Look more closely at your finances. How much do you make? How much do you spend? What do you spend money on? How much are you saving? Are there any investments? The moment you admit to yourself there’s a problem, the journey to recovery has started.
2. Have an accountability partner
In my case, it was my wife. She knew I was in trouble and needed help. Her support was very critical in resolving the issue. Get someone who will hold you accountable and follow through with any plans you may come up with. You have to decide to be open to the person. Sometimes, we are in very deep trouble that we can’t come out by ourself, it may take another person to pull us out of the pit we have found ourselves. Your accountability partner must be someone you hold in high esteem and whose words you’re able to respect. You must submit your self to this person as you walk through this journey.
3. Get a repayment plan
How will you repay the existing debt? You may need to create a budget so as to control how you spend money and free up some cash flow for debt servicing. Can you get an additional income? Or can you cut down some spending? Are there items you can sell to raise cash? Do you have 2 cars in which case you can put one up for sale? A plot of land you can sell? Jewelries? Stocks? Any asset whose sale can immediately reduce your obligations? There’s no point having several cars and other assets when you’re neck deep in debt. If you resolve your indebtedness, you can have all these things back. Your plan should show how much you can commit to servicing the debt obligation on a periodic basis. Your plan should also show which of the debts you want to tackle first or in order of priority. I suggest the more expensive debt should be settled first.
4. Negotiate with your creditor
Don’t avoid or run from your creditor. Meet up and explain your true situation. Show willingness to repay and many creditors will give you the benefit of doubt. Be honest with your plan and negotiate for the best terms that will be convenient. Sometimes, you need to request for a restructuring of your debt. You may need to ask for a longer period to repay. That way, the installment payment is lower but the interest (if it’s a loan) paid will be higher on the long run. You may request for interest waivers so you can focus on the principal alone. In this case, be ready to make a good faith payment so the creditor can see your seriousness. You may be lucky and some may forgive part of your debt. Don’t expect or ask for this however. I had to face my creditors and negotiate various repayment plans. In one particular instance, I requested for a repayment tenor of 18 months rather than 12 months.
5. Cut off extra fat
You can’t be indebted and go for vacation. That’s the height of irresponsibility. Cut off some fat. Paying off debts will involve you living simply and getting rid of any seeming extravagance. Avoid ‘aso-ebi’. Cost discipline is key here. If your revenue is thinning out, reduce your cost. Use Uber instead of driving your car. Share an office instead of spending money on renting yours. Eat more at home rather than buying lunch always. Use power saving devices to reduce your electricity spend. Buy in bulk and make some savings. Use loyalty vouchers. If you must go on holiday, explore local holidays instead of international destinations. Do Star Times or GoTV instead of the full option. Cancel that Netflix. Be nimble with your data plan- switch off when not in use. Quit smoking or drinking. If you take a bottle of beer daily at N500 per bottle and you stop, you would have saved N180,000 in a year. The truth is that little savings from exercising cost discipline will end up amounting to something significant. Whatever excess fat you have shaved off should go towards repayment.
6. Monetize your skills and earn extra income
It’s very tough when you have to repay debt from just one stream of income. It’s much easier if there are several streams. While I will not encourage anyone to defer repayment of debt because you want to start a side hustle or business, I believe it’s advisable to look inward and consider the skills you have that can be easily monetized for you to earn extra income. Can you write? You can be a freelance writer. Do you have good communication skills? You can emcee events for a fee? Do you have good photography skills? Don’t stop at taking good selfies alone- get your camera and take pictures at events? Can you cook? Start preparing meals at home and advertise them on your social media handles? I once told someone who was in a bad state financially to look inwards. He lived in his own house but he was dead broke. After counseling him, I told him he had what he could use to jump-start his finances. I suggested he turned the back of his house to a football viewing centre. He already had DSTV, a big screen TV and a refrigerator. He will sell drinks to viewers who will pay a fee to watch matches. Look for a side hustle that relates to your skills and doesn’t require a huge capital outlay. The extra income will help you to increase your repayments and clear the outstanding debts.
These are the steps I took. I was focused and consistent with the strategies. I paid all my debts in 2 years. You also can do likewise.
Psalm 37:21 (ESV)- The wicked borrows but does not pay back but the righteous is generous and gives.
Written by Bayo Adeyinka