DEBT 101: ARE YOU PLAYING DEBT CATCH-UP?
Are you a movie fan?
Watching movies with family and friends can be fun until when you have to take a phone call or answer the doorbell. The best utility ever made since the invention of motion pictures comes to play here (pun intended); the REWIND button.
Knowing that you can catch up on what you missed gives you relief. It lets you handle your interruption without worrying about what happened, who went where or the new character introduced into the plot.
Similar to a movie, our Financial lives can be a ride in the park when you have a good job and stable income until there is a debt break! When debt becomes unsustainable, you realise you need to ‘catch up with your financial stability and lifestyle.
Banks often check your income and creditworthiness as a standard procedure before loaning you. It ensures that your monthly repayment does not exceed a certain percentage and that debtors can clear their debt. A due diligence process is observed before taking a loan since bank policies differ. The percentage of your income repayable to loans depends on your disclosed income. This is known as your Debt-Income Ratio. The interest rate on the amount repayable can be uniform on loans offered to their clients. But there’s a regulation on the range of interest chargeable.
Lilly (not her real name) once shared on Facebook how debt caused her to play catch up in her financial life.
The bank gave her a loan of 3,000,000 to pay for her new car. This was after evaluating her credit score. But her repayment ended up being 70% of her monthly income. She had to compromise her financial goals. She ended up in a debt cycle, borrowing small loans here and there to pay for her utilities. It became clear as day for her that clearing her loans would need 2 actions: either cut her living costs or increase her income by 30%.
An income increase meant she could catch up with her lifestyle. She won't necessarily feel the impact of the debt clearing since she will be working to earn more to pay off her loan. But this meant that she had to endure exhaustion and stress juggling side jobs and working longer hours for overtime pay. Eventually, she realised that her financial decisions were affecting her mental peace and physical health.
Lilly is one of the people who is struggling with catching up with their financial lives. So many people have gotten into debt to purchase gadgets, and investments and even take advantage of sales and discount seasons.
Evaluate risks before taking debt. See what a debt might cost you in the long run. For some, it has cost them investment opportunities. Financial institutions limit access to certain financial services to debtors who default on their payments.
Bad debts have led to personal properties being repossessed or auctioned as compensation. Family relationships sometimes go sour and divorces can occur because of not being able to catch up. Businesses have collapsed from ballooning debt.
Debts have a way of freezing time. When you decide to stop catching up with debt, you are already in a debt trap. This is why debt seems like slavery; the endless toil to pay what you owe when you don’t have enough to spend on yourself.
When you decide to borrow money,
- Have a clear purpose for borrowed money
2. Draft a clear plan on how you can manage the debt
3. In your plan, identify the ways of repayment.
4. Developing a wealth mindset changes the money habits that lead you into debt catch up.
Catching up with debt is surviving and not living. Our Financially Fit For Life online program covers wealth principles to transform your financial life into a life free of debt. Stay financially fit.
Do you want to know the different types of debts and how to manage debt?
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