A number of people wish to live a debt free life and yet every passing day, they sink deeper and deeper in debt. It might appear impossible, but we have seen people succeed in living their entire lives without any debt. The question is “How do you begin getting out of debt (commonly known as Mabanja in Luganda - Ugandan local language), and sustain this kind of lifestyle? It’s not an easy feat, but if it’s something you truly want, don’t let naysayers talk you out of it. There are countless methods out there for people looking to cut spending, payback debt, or avoid it all together. Whether you have held a debt in the pastor not, it’s within your power to keep it out of your life going forward, and here’s a few pointers on how to get started.
Is your debt becoming a problem?
There’s a lot of misunderstanding about debt and how to approach it correctly for example a loan facility that has been acquired for the sole purpose of restructuring a business or buying more supplies for the business can be good debt- this money owed will help build wealth or even better increase the borrower’s income overtime. So not all debt is necessarily bad! The problem is when your debt obligation is beyond your capacity. That distinction can be tricky sometimes, but to help you determine whether your debt is a good or bad one, look out for the following red flags:
You’re receiving calls from debt collectors. Collections efforts don't usually start until you've begun missing payments, so if you're getting calls, you've likely started falling behind on your debt obligations.
You have no savings. If you don’t have any money set aside for emergencies, you will find yourself in a financial crisis as soon as your next big emergency hits.
You have no idea about your monthly spending and cash flows in general. If you don’t budget your money or even know the total amount of debt you have accumulated, you’re bound to have less financial security.
If you know that behaviors align with any of the above outlined red flags, then maybe it’s time for you to take action. You can get out of debt, and improve your financial security by changing a few habits.
How to begin getting out of debt:
Make a deliberate effort to understand your financial position.
Before you can take action, you need to have the big picture of your cashflows in mind. Sit down and create a list or spreadsheet of your accumulated debt; a breakdown of your monthly installments, and your total balance. You should also include your utility expenses like rent, and water. Add to it any other monthly expenses that you incur for each month. Sum these up to get to the total cash outflow for each month. Now you know on average how much money goes out every month. Next is to match the cash outflows with the total cash inflows – at this point you can make a monthly budget since you have a better understanding on how much money is going out, and coming in. You need to be realistic while you draw up this budget, the cash outflows cannot exceed the cash inflows. If that happens, find a way of cutting down the irrelevant expenses.
Contact your creditors
Your creditors do not want you to default on your monthly debt obligations, so it's often in their own interest to help if you declare that you are experiencing a financial strain. You can reach out to them directly and discuss your financial crisis to them, and also the possibility of having a loan restructure in order to continue honoring your monthly debt obligation on time. You can come to an understanding of either lowering the monthly interest rate going forward or negotiate a payoff amount on a specified date. They may have short-term and long-term plans available to help you manage through your financial strain. It's not a guarantee, but it's worth making a phone call, and discussing the issue at hand with your creditors.
Try to establish an extra source of income
While cutting your budget is great and all, making more money is great too. It allows you to save more money because you can only cut your budget by so much. Your income on the other hand can grow by an endless amount which is why you may need to find an extra source of income.
Create a plan and stick to it
Having a plan is great, but it only works only if you follow through month after month. One of the smartest strategies for getting out of debt is to pay off the most expensive debt first.
Once you have paid off your first most expensive debt, re-channel the source of funds to the next most expensive debt. Continue this method as you pay down each of your debts, and you will be left with your least expensive debt to pay down last. This strategy will get you out of debt quickly, and you will feel encouraged as you see your progress.
No matter how you decide to deal with your debts, the best advice I can give you is to “be more intentional about your financial management and start now. The sooner you act, the more options you'll have and the easier it will be for you to achieve financial freedom.
