IN a previous article, I wrote about being in debt distress and I looked at various factors that we need to be wary of that can force us into that sorry state.
It would only be meaningful for us to then try and help each other to get out of the debt distress situation and get to a point where we maintain healthy debt as individuals, families, or even as a country.
It is important to note that the process can be long and stressful but very necessary as the end result of eliminating unhealthy debt is the focus.
The first thing to do is to be honest with yourself about your debt situation.
Most times, people would want to downplay their situation and bury their heads in the sand, yet the truth is there as evidenced by what is happening to their finances.
You need to list all the debts you have and create a list of who you owe and how much, and in other terms, have a personal debt audit. Using our previous example, this means the father as the head of the house sits down with his wife and the elder children and acknowledges that the family is now in distress because of the amounts they owe.
Why the elder children and not all?
Well you need to have this serious discussion with people who will be able to understand the nature of the problem and help you find a solution to the problem.
It is important to have others around you for support as the realisation of the depth of your debt can be overwhelming, causing you to panic and have suicidal thoughts
Similarly, the Government should realise through the Minister of Finance that the country is now in debt distress and have an open and honest discussion with all the relevant stakeholders, including government departments, civic society and other actors to try and map sound ways to get out of debt.As mentioned before, the first thing that is needed is a debt audit that will allow for a true reflection of who is owed, how much they are owed and how the money was used.
Zimbabwe was declared to be in debt distress by the International Monetary Fund and since then the civic society actors have been calling for a debt audit to have a true appreciation of the debts that are being dealt with. After finding out the true depth of your debt, you need to analyse your spending habits and interrogate how you have been using your money.
Here you get to pinpoint what is absolutely necessary and what are just luxuries that you can do without. You also realise if you have been living out of your means.
In most instances, we get so caught up in the need to look like we are living a lavish lifestyle where we drive expensive cars, live in mansions and can spend extravagantly to amuse our peers, when we really cannot afford to sustain that with the money we really make.
These are some of the things we need to evaluate and ask ourselves if they are really necessary.
Do they allow us to lead a healthy lifestyle or do they put us at risk?
From simple things like asking yourself if you can really afford to eat meat on a daily basis, or your income requires you to complement your diet with cheaper options.
Living within our means is very important if we want to get out of distress and it allows us to find comfort in the resources we have.
A country may also suffer the same, making undertakings that make it seem as though the economy is booming and it has extra funds to throw around. This is a reckless stance that will force the government to make rash decisions that will cost the citizens.
If a government insists on maintaining a fake image, the citizens will be forced to continuously live under austerity, with ever increasing taxes and with no social safety nets.
Unhealthy spending habits expose people to financial vulnerability and should be stopped.
Once you have established how much you really owe, and what has caused you to be in that situation, the next thing to do is to make a plan to pay off your debts.
When you know who you owe and how much you owe, and have made eliminations of unnecessary luxury items, you can now plan for the repayment of the debts.
As you create your plan, you have to come up with a priority list for the debt repayment.
In this plan, or budget, it is important to cater for your basic needs, covering your most essential needs, and then the rest goes to loan or debt repayments.
Drawing up a budget is important as it will help you live within your means, and use what is available to you to get out of the predicament.
You may also want to communicate with the people you owe, so that they understand your position, letting them know that you are aware of the position you are in and you are making efforts towards rectifying it.
This allows you the liberty to follow through on your budget plans while at the same time managing the expectations of those you owe, thereby reducing the amount of stress you are faced with.
Sticking religiously to your plan also helps calm your stress as you see your progress in debt elimination.
In a situation where you really are in too deep, you may want to enlist the help of professionals who will help you with your budget and a payment plan.
When all has been said and done, it is important to realise that you can be happy and live a fulfilling life if you live within your means.
It is very important for one to avoid borrowing for consumption purposes.
Borrowing money is often understandable if you want to invest in an idea or a project that will bring in profit at some point.
The profit then allows the project to pay back the initial loan without putting you in distress.
Unlike when you borrow money to buy groceries, clothes or other edibles, when you borrow for investment, you are more likely to suffer less debt stress. So, if you are going to borrow, have a valid reason to do it.
- Millin is a social and economic justice ambassador. These weekly New Horizon articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society (ZES) and past president of the Chartered Governance and Accountancy in Zimbabwe (CGI Zimbabwe. Email – firstname.lastname@example.org and mobile No. +263 772 382 852.