‘Making ends meet’ – The ABCs of debt management

Tue Nov 12, 2013

Editor: About two weeks ago, I was scheduled to sit on a radio panel discussion on WeFM as part of the ECCB Financial Information Month programme. The topic of discussion was supposed to be “The ABCs of Debt Management.”{{more}}

Unfortunately, the radio discussion did not happen because of unforeseen circumstances. I decided then that I would pen an article of my thoughts on the said topic. I boast not of being a financial management expert. However, I have read some available literature on the topic. Also, I bring my practical experience. The acronym ABC means Assess, Budget, Consolidate.

As we go through the hustle and bustle of life each day, we often hear people talk about “trying to make ends meet.” The reality is that many of us are struggling daily to “make ends meet.” For some of us, it’s something that we have been doing for most of our lives. For those who are considered “well off”, the global economic situation has awakened them to this reality.

The fact is, bills are increasing, cost of living is on the increase and basically, the spending power of every dollar is being diminished.

Assess – Proper debt management begins with assessment. It means that wants and needs must be separated. This can be done by keeping track of spending habits for a month or two. Maybe you can collect all receipts or note all expenditure.

At the assessment stage, you don’t limit yourself. Just spend as you would normally do. You want to get a realistic view of your spending habits so that you can manage your debt effectively.

After assessment you BUDGET. Since I was a little boy I have been hearing about the importance of creating a budget. Sometimes it seemed like such an abstract phenomenon. The reality is though that in order to build good financial practices it is imperative that you budget and live by it. In this economic climate, you need to budget.

Budgeting allows you to use your income properly to cover your expenses. It shows you where there may be extra money after expenses so you can prioritize your spending obligations. The extra cash can be used to pay off debts or go towards building a reserve.

There is always monthly recurrent expenditure that we have to meet. It is advisable that you create a payment schedule. By doing this, you reduce the chances of late payment.

A common practice is to delay payments. It is important to note that delayed payments only make the debt accumulate and harder to pay off. Of course there are circumstances when debt payment has to be delayed. However, it is good practice to avoid delays.

Life is very uncertain. It is therefore imperative that you plan for the unexpected. Create an emergency fund. Make a monthly target and save it. Such a reserve will accumulate over time. Literature advises that you should ensure that your reserve is at least six (6) months of your monthly expenses.

Consolidate – To consolidate your debt payment is to bring together all your debt obligations under one payment plan. This allows you to make a monthly payment which will be more manageable. It means that rather than paying monthly payments to Courts, Singer, Layne’s and so on, a loan is taken to pay off these debts and one monthly payment is made to the credit union or bank. Very often, a consolidated loan is at a lower interest rate. A simple chat with someone at your financial institution can provide some guidance to you on consolidating your debt payments.

An alternative to a consolidated loan is to prioritize debt payments. Pay in order of priority. It is advisable to pay first the debts that have higher interest rates and then follow suit in decreasing order. I am almost certain that the credit card payments will top the list.

Debt management requires some patience and perseverance. Your mounting debts did not happen overnight. Therefore, do not expect them to be reduced and addressed overnight just because you applied the ABCs model. It will take time. Just persevere and be committed to the process. Eventually, “practice will make permanent.”

Kenrick D. Quashie

kquashie@gmail.com

(Kenrick D. Quashie is the Founder and Managing Director of Youth Business SVG)