DEBT MANAGEMENT IN TOUGH ECONOMIC CONDITIONS

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DEBT MANAGEMENT IN TOUGH ECONOMIC CONDITIONS

Quote of the Week:

“Winners take time to relish their work, knowing that scaling the mountain is what makes the view from the top so exhilarating.” Denis Waitley.

As the year comes to an end, it is time to look back and reflect on the difficult economic conditions we have had to endure so far. The cost of living has risen significantly due to high food prices, energy prices, transport costs, rental expenses and generally increased cost of meeting basic expenses. The situation is made
worse by the fact that inflation and interest rates have hit double digits hovering around 20% meaning we are spending most of our income meeting basic expenses of daily upkeep leaving little for savings. debt

In our efforts to meet certain goals in life like owning a house, starting a business, furthering our education or in case of emergencies, we might have approached a bank for a loan or mortgage earlier in the year. Lending rates have risen significantly over the last few months meaning we have to dig deeper into our pockets to meet higher loan repayment obligations. Below are some ways of managing your debts to ensure you don’t default and lose your assets you used as security for the loan.

1. Renegotiate with the bank
Given the current high interest rate environment the banks have adjusted their lending rates upwards to protect their profit margins which means those servicing their loans will be required to pay higher amounts every month. This is going to increase the burden on many individuals and households who are already struggling to make ends meet due to high cost of living. It is important to approach the bank and ask for an extension of the repayment period so that the repayment amount remains constant. This will ensure that you are not stretched financially to a point where you default and lose the asset you had used as security for the loan. It is important to also use your credit history when negotiating emphasizing the fact that you were regularly meeting your repayments without delays.

2. Reducing Spending
It might not be possible to control interest rates or the prices of food and energy but it is possible to reduce your expenses by taking a closer look at your budget and eliminate or reduce nonessential expenses. Budgets can help you understand your current financial position, including how much you earn and how much you owe. It is important to try different ways of reducing spending like carrying lunch to work as opposed buying lunch, buying in bulk and developing a family budget so as to have a focussed approach in reducing expenses. If you don’t know how much you spend in a month or where your money goes it is crucial to use personal financial tools like the Zimele Personal Expenses Diary so that you can track your monthly expenses. It will greatly assist you to know where your money is going and where you can cut back so that you can service your loan without much pressure.

3. Increase your Income
If you are working and the income has stagnated while costs have risen it is important to consider alternative ways of earning extra income so as ease the burden of the high cost of living. If you earn income from different sources it is important to critically analyze them to see which one you can maximize on in order to increase your earnings. It is important to try different ways like working for longer hours, engaging in some side business or using your talent in order to get that extra income.

4. Pay off Debt
It is important to analyze all the debt that you are currently servicing and determine which one you can pay off relatively easily so as to reduce the financial burden of servicing all of them. The key consideration here is to try and stop the pressure of fixed expenses from building up which might lead to defaulting on loans or
inability to meet other obligations like paying rent, school fees e.t.c.

Conclusion
Even though we have faced many financial challenges this year it is important to be positive and work extra hard to ensure that these adversities do not stand in our way of fulfilling our goals. Budgeting and reducing spending call for financial discipline and sacrifice but will pay off in the end. . It is important to note that
sometimes in life things are bound to get difficult before they start improving, so the same goes for the current environment of high inflation and interest rates. The good news is that the current rains are expected to lead to lower food and electricity prices from early next year, which will translate to lower inflation and an easing in the cost of living.

You can send your comments or questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or visit our offices at Ecobank towers, 7th floor, Muindi Mbingu street. You can also follow us on our facebook page- Zimele Asset Management ( Kenya)