Personal Finance: Getting Out of Debt (3)

Being in debt is a terrible experience especially when you find it difficult charting a pathway out of the problem. Every phone call makes your heart beat faster. Each knock at your door makes you break out in sweat.

You avoid going to certain places out of fear of being embarrassed. Many suddenly fall in love with staying indoors. A few will turn their back and run. Things take a new turn for many as they experience the vicissitudes of life.

On May 8, 1939, the whole estate of Chief Obafemi Awolowo was auctioned by the order of court in respect of judgment debts. His property at Ikenne was auctioned for £40. His Chevrolet car was sold for £25. His clothes were sold too.

He was present at the auctioning and when a police constable saw him, he remarked “you are indeed a man”. By 1942, he was able to purchase the property back. He resolved the indebtedness in 3 years. I resolved mine in 2 years.

There are certain mistakes you need to avoid while resolving the issue of indebtedness. Avoiding these common mistakes will go a long way in making you see the pathway more clearly and setting everything in proper perspective

Here are 7 common mistakes people make while trying to get out of debts:

1.Running from the creditor

That’s a common mistake many make. They avoid the creditor. Some run from that location and settle in another. Many refuse to answer their calls again. The problem will escalate when you avoid your creditor.

Most are assuaged if you keep talking and re-assure them that you’re working on a repayment plan sincerely. Demonstrate your willingness though you lack the capacity. Creditors are more lenient with customers who show willingness. Don’t run.

2.Borrowing your way out of debt.

In my own case, I wanted to resolve my indebtedness by borrowing more money which I threw at forex but it backfired. If you don’t have a clear repayment plan, taking on additional loans in order to resolve a current one is a major mistake.

You would be digging your hole instead of trying to come out if you do that. If you are thinking of taking an additional loan so as to resolve your indebtedness, you should be sure that it will generate enough returns to service the outstanding obligation and pay down the new one

Otherwise, you would have succeeded in increasing your debts.

3.Keeping the same habits

It was Albert Einstein who said, “Insanity is doing the same thing and expecting different results”. You can’t keep the same habits that got you into the rut in the first place and expect to have your problems solved.

You must strive to change certain habits after a holistic appraisal- most especially spending habits. You can’t maintain the same lifestyle pre and post-indebtedness. Anything that takes money out of your hand must be scrutinized. Determine to make small cuts or eliminate totally

If you eat out a lot, can you start making your breakfast and lunch at home? Can you change your DSTV bouquet to a cheaper alternative like GoTV? Can you either eliminate your vacation or choose cheaper destinations?

I can’t fathom anyone in debt going on expensive annual vacations. That’s irresponsible in my opinion.

4.Not having a clear repayment plan or strategy

Your debts will never be settled by mere wishes. You can’t beg your way out of indebtedness. Crying is not even a strategy. You need to know exactly how much you owe.

Take out a book and write everything out including your monthly expenses. Then write how you want to sort them out. Is it through your salaries? Do you have a side hustle? Are you selling an asset? Is it debt forgiveness? Are there expenses you can take out or reduce?

5.Trying to pay multiple debts at once.

If you have multiple debts, don’t try to pay all at once unless you really have the capacity to do so. Many don’t have the capacity so it’s better to resolve by identifying the priority levels of each debt.

If you’re owing 4 people, the best strategy is to focus on one debt at a time. There are two ways to do this. Which one is more urgent? Which one can you pay down that will lower your interest rate urgently?

The first method is to arrange the debts in order of priority and start payments from the most pressing to the least. Th second method is to clear the smallest loans first and reserve the biggest for the last.

Clearing the smallest loans first will give you enough motivation to face the rest.

6.Waiting to make more money

I’ve seen instances where debtors claim to be waiting to make more money before they pay their debts. They forget that the unserviced loan will attract huge interest and will take more efforts to repay.

If you’re owing and you have the capacity to make payments, do so immediately and as frequently as possible. Every Naira paid adds up. When the money being expected comes, it will assist in defraying the outstanding.

7.Not addressing the root cause of the debt

Why did you get into debt in the first instance? Were you trying to fund your consumption? Were you feeding a particular habit? Were you trying to acquire assets that were not within your means?

Were you living beyond and above your means? Were you trying to keep up with the Joneses? You need to do a honest self-appraisal and address the root cause. What can you do about this? If you need help, please seek for help.

If you don’t address the root cause, you’ll be treating ringworm instead of leprosy.

I will show you the specific steps I took and how I finally paid all my creditors and resolved my indebtedness in the next episode.

Bayo Adeyinka

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