How to dig your way out of debt
John has formed the habit of leaving home early and coming back late at night. John’s office is a few blocks from his house. He also doesn’t work on a night shift. He hasn’t been to his office, in six months.
He has adopted that pattern because he is owing millions of Naira.
He had brought in banned items, which were seized at the border. Unfortunately, this was his biggest consignment. He borrowed N5 million from a microfinance bank at 60% per annum, N2 million at 20% per annum from another bank, and N3 million from family and friends.
Here are 7steps he can adopt to get out of debt.
- Acknowledge it
Pretending you don't owe money, won’t make the debts go away. They will, in fact, keep compounding. To get out of debt, you must face reality.
2. Collate your debt
Add up ALL the debts you owe. Big or small. Taken from family or financial institutions. By not paying back loans taking from family and friends, you destroy your social capital.
3. Prioritise high-interest loans
For instance, the repayment of a loan with an interest rate of 60% per annum from a microfinance bank should precede a bank loan with an interest rate of 20% per annum.
4. Draw a timeline
Draw up a timeline and ensure it is affordable and practical so you do not sink back again
5. Cut down frivolous expenses
At times of emotional and mental stress, some people embark on frivolous expenses. Excess food or alcohol. Aside not being a good look in the midst of your creditors, you are simply digging yourself into an already deep hole.
6. Maintain contact with your creditors
Let your creditors have a clear picture of what you are facing, and inform them of any repayment plans that you have. Some may be gracious enough and decide to either waive part of it or forgo it entirely.
7. Change your habits
You must change the habits that got you into debt. DO thorough due diligence before committing funds to anything. Have a session with a counsellor, if there are deep-seated habits you need to change.
