Dealing with Debt – Part 3


Wednesday, February 07, 2018 09.17AM / Skye Pearl / Olajumoke Caxton-Martins  

This is the concluding part of our Dealing with debt series. You can read the first episode here and the second episode here. We hope this helps you begin the journey towards freedom from debt.

“Adesuwa dear, let me hear your pitch” said Adesuwa’s Aunty, Esosa, smiling gently at her. 

“My pitch? I don’t understand ma” replied Adesuwa, mildly confused.

“Yes, your pitch. When you called me that you wanted to see me, I assumed it was man trouble. I am glad to find out it isn’t.” She replied, pausing for effect. “Inasmuch as you have declared that you want me to borrow you money to start a business, we have to treat it as business and put all sentiments aside. What I need you to do now is take the next few minutes to sell your business idea to me for me to decide if it is something I can commit money to.”

“Oh, ok. I want to start selling costume jewellery. I need at least N500,000 to start. A small shop would cost me about N150,000 and I would need to fit show glasses and shelves there; that should not cost more than N50,000. The balance would be used for purchasing stock, ma.”

“You have not said anything that would make me invest in this business o…”

“I just want to be doing something so that I would stop asking for money from mummy every time. I feel bad burdening them with all my needs after all they have gone through to pay for my education.”

“I understand what you are saying but that is still sentiment. You know I worked for this money, not like I inherited it. I won’t part with it until I know that it would be safe and it can produce even more of its kind.”

“Is it that you don’t trust me?”

“Not at all! Why would you say that? The only problem I have is that in this narrative of yours, you have identified how you want to spend money, not how you want to make money. Just in case you don’t know, a lender’s first concern is the safety of his or her funds and how he or she will get it back. What it would be spent is important too but secondary.”

“I understand you now ma. The jewellery I buy would be sold at a profit ma.”

“That is usually everyone’s intention – to make profit. But, who would it be sold to? Do you have a ready market for it?”

“Women like jewellery ma. Diamonds are a woman’s best friend.”

“When was the last time you bought jewellery?”

“I can’t be the standard o… I finished school two years ago. I have not had an allowance or a salary since then.”

“Just answer my question.”

“Less than two years ago ma.”

“How many did you buy?”

“I just bought chandelier earrings for my graduation. That was it.”

“Have you ever heard of someone having a change of jewellery wardrobe?”

“No, ma.”

“I don’t think you are ready to sell jewellery Adesuwa. To get anyone to give you money for business, your business idea must be well thought out.”

“Ok ma.” A very disappointed Adesuwa could not understand how her mum’s younger sister, her blood, would have N500,000 and refuse to give her to start a business and help her become financially independent. Shouldn’t her progress be the paramount consideration for lending her money?

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STEP SIX: Contact your Creditors.
Get in touch with the people you owe. It would not be nice for them to come after you for repayments only to find out that you are unable to repay. So, whenever you find that you are unable to meet your basic financial obligations in terms of repayments, contact your creditors immediately to advise them of your situation. Most creditors will propose a short-term solution. You are more likely to benefit from a total change of the repayment plan if the difficulty recurs. Therefore, it might be in your interest to request for a restructuring of the loan altogether. 

You will never know if you would meet with forbearance if you never ask. Always stay in touch with people you are indebted to; be it an individual or an institution. This is particularly important for personal loans from family and friends. Let them know you are committed to your relationship with them and you don’t plan to sully it with the loan. They would always be your sure-banker, your fall back option. Treat them right.

For the next few months (some people may need to do this for as long as one year to 5 years in serious cases), live below your comfort level. Do without luxuries. Pay your bills immediately. Avoid buying things on credit. Being disciplined financially means knowing your means and consciously living below it. We all know people who don’t earn much but are “rich”: the cab driver with 6 flats, the cleaner who earns N15,000 per month but lives in her own house. If you can’t afford it, then avoid it. 

Don’t try to keep up with the Joneses. Even if you can’t afford it now, let your financial discipline and savings culture assure you that you would be able to afford it sooner than later. Then, you would be able to enjoy it without apprehension or fear of repayment. When you borrow money for things that lose value easily, you are jeopardizing your financial future; mortgaging your tomorrow for the fleeting pleasure of today.

STEP EIGHT: Increase your income
If the ends are not really meeting on a consistent basis, you should seriously consider making more money. It is very possible to have multiple streams of income. Not only is it possible, it is advisable. It gets even better if the income is passive, though passive income is discourse for another day. Did I hear you ask how can you increase your income? Look around. What void exists that you can fill? What products can you sell? So many network marketing opportunities exist today that can be taken alongside full time employment and entrepreneurship. What services can you offer? What skills can you learn? Trust God for inspiration and get in touch with me if you need ideas by leaving a comment below. You will be glad you did. 

Good Debt Vs. Bad Debt
Having said all the above, I must mention that not all debts are bad. Good debts create value, build wealth and generate income. Loans to purchase property, finance education and for investment purposes can be regarded as good debts. On the other hand, bad debts do not share these qualities. A typical bad debt is incurred when you borrow to buy something that would depreciate in value without generating income. 

A lot of budding entrepreneurs complain that individuals that they perceive as being well to do and financial institutions are unwilling to give them loans to start their businesses. Well, I think I should mention it here that the first consideration in lending is not a good business idea but the borrower’s ability to pay back. Thus, corporations and individuals who have the funds to spare would be more than willing to loan a person money if his/her business has proven his/her ability to generate the income that will repay the loan. This is why it is necessary for entrepreneurs to start business with their own equity, what they have. When you start your business with your own equity, as the business begins to expand, you can then decide to take a loan to help you grow the business.

Generally, when you approach a financial institution for a loan, you would be asked to furnish your one year bank statement, which is what they would use to determine what you have been able to do with what you have. If you have not been able to manage what you have well enough to multiply it, you would not be eligible for a loan. If you have, you would be in a position to choose the most favourable offer from a bouquet of offers of facilities.

In conclusion, even with good debts, you need to be cautious about borrowing. Taking on debts when there are no means of repayment is very risky business. Never allow debt take control of your finances. Make a decision to be in charge of your own money. Decide today to put your finances in shape. Debt is an indication that some basic things are not in place like a budget and a pool of emergency funds. Start dealing with your debt today by drawing up a budget. Allocate a percentage for saving, a percentage for giving, a percentage for emergency funds, a percentage for debt repayment, a percentage for family and a percentage for treating yourself, as the income earner. When you do this, when issues come up, like they definitely will, you might not have to borrow. You would have something dedicated to catering for such.

Living without debt definitely takes financial discipline, but I can tell you from personal experience that it’s one of the best things you can ever do for yourself. Debt sucks you dry financially, costing you the future in interest and fees that could be going into investments. Simply structure your expenditure and plan ahead for emergencies and major projects.

Thank you.

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