Did you know that a staggering 3.2 Million Kenyans were listed on CRB by April 2020? A good assumption is that digital loan apps have made it easier for people to borrow. But there is also a huge segment that is not represented here. Think about student loans, mortgages, business loans among others. You might know someone in debt somewhere. Even our country is a nation in debt.
Is it possible to live debt-free?
The truth is that getting out of debt isn’t easy. But you cannot keep borrowing your way out of trouble. Debt is stressful. Some people choose to bury their heads in the sand.
Well, there are several ways of getting out of debt in Kenya, without feeling miserable. Here are some strategies you can apply starting today.
- Start with confronting your debt
You might be afraid of how much debt you have. Yet, ignoring the problem doesn’t make it go away anyway.
For starters, begin by figuring how much debt you have. As difficult as it may be, taking some time to tally up your debt will give you a clear sign of your situation. Also, understanding your total debt will help you test your debt-to-income ratio.
Say you are currently making KES 100,000 per month, and you have KES 20,000 in monthly debt. In this case, your debt amounts to 20% of your income. From these calculations, you will be in a better position to figure out an easy strategy to pay off your debt. In our example here, you could opt to pay more than the bare payments for some loans. Hang in there, we will dive deeper into this in a bit. It is important to identify ways you have accumulated debt over time. Some debt accrue due to unavoidable circumstances, e.g. medical costs. Others come about unwise decisions. Reflecting on these situations will help you to change your behaviors in the future.
2. Aim to pay more than the bare minimums
Like I pointed early, understanding your debt ratio is a crucial step in starting to pay it off. Consider analyzing your budget and decide how much extra you can put toward your debt. From the example above, a lower debt percentage means that you have extra cash that you can use to repay your debts.
Putting that extra cash in debt repayment guarantees that you can repay your debt much faster. As such you avoid higher interest rates and penalties that accrues with late payment.
3. Try paying the small and high priority debts first
Consider listing all debts you owe from the smallest to the largest. Again, you can speed up the process by throwing your excess funds at the smallest debts. At the same time, make the least monthly payments on your larger loans. Once done with the small loans, start putting that extra cash towards your next smallest debt. Your small debts will disappear, freeing up more cash to repay your larger debts over time. This is known as the snowball debt repayment method, and you can use the calculator to see how long you will be in debt.
4. Make a budget and commit to it
You heard the saying, ‘live within your means.’
Most of the debt that we get into is a result of splurging on things that we could do away with.
If you desire to be debt-free, you will need to cut back on your expenses to as low as they can go. This of course should look different from person to person. The bottom line is that your budget should not include unnecessary spending.
Besides, having a strict budget helps you set aside funds to repay your debt.
5. Say no more often
So far, you understand the root cause of your debt situation. You also have a budget that will help keep your spending in check.
But when temptations arise, remember to say no. Take a moment before considering a ‘good’ credit offer. Ask yourself; Do I need to commit now? If possible, buy some time. Here, having a frugal mentality is key. When the situation improves, you can be more flexible, but by all means, avoid the debt cycles.
6. Live a simple lifestyle
If you are living in debt, now is the time to drop those expensive habits. Avoid stretching your budget or taking a loan unless you need to. Living a simple life also calls for you to change those behaviors that got you into debt in the first place. Note that the reason that got into debt does not matter. What is crucial is that you don’t let it happen again by spending more than you have.
7. Look for ways to increase your income
Debt is a key indicator of financial distress. To avoid this, try enlarging your sources of income. If you are an employee, explore side hustles that you can do to bring in that extra cash. Also, for an entrepreneur, think about diversifying your revenue streams. For instance, introducing another product or service might be a good idea.
Other ways you can increase your income could be:
- Asking for a raise from your employer.
- Selling things you don’t need. Like that guzzler of a car.
- Working smarter. For example, charging a consultancy fee for that advice you have been sharing with the board.
The point is to earn above and beyond what you spend.
8. Using ‘found money’ to pay off debt
Once in a while, we come across some type of ‘found money.’ It could be a work bonus that you were not expecting. Even that NYS Tender that you were not sure about. Whatever the case, this random cash could go a long way toward helping you become debt-free.
Sometimes, it takes more than cutting on your expenses to get out of debt. So when you come across that unexpected source of income, be sure to use some of the cash to pay off your big debts.
9. Always save up for that rainy day
While sometimes debt can be unavoidable, it is a must to have a plan for emergencies. Start saving up for unpredictable situations.
Purpose to have a savings plan in your budgeting every month. Also, keep the funds away from your transactional accounts. In case of an emergency, you have something to use before considering taking on new debt.
10. Negotiate your credit terms
More often than not, debtors will be willing to listen if you would like to negotiate your credit terms. You need to ask, for example for an extended payment period. You can also negotiate for lower interest rates or against random penalties. Other options include doing a balance transfer if the debtor won’t budge on the credit terms. All in all, know when you need help and ask for it when necessary.
Some debts may take years or even decades. Thus, paying them off requires a great deal of motivation. Have strategies that will help build the momentum to pay off your debt and remind you why you want to get out of debt.
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