While everyone might have concerns about financial implications of this pandemic, if in debt, you have a lot more to be concerned about. Debt creates a mental burden especially when there is no clear way of paying it off. Unfortunately, this pandemic will result to unwanted transitions for many as well as challenges with debt management.
According to Mitch Anthony, the author of the book New Retirementality, ‘money goes into motion when life is in motion’. Many financial mistakes are made during times of transitions and difficulties. This crisis offers a great opportunity to review your finances and financial goals, taking a long-term perspective and realities of economic uncertainty. This includes a critical review of lifestyle priorities since lifestyle choices drive debt decisions. Plan to maximize your Return on Life (ROL) by utilizing your current resources to get the best life possible.
Having experienced a major transition not long ago, I found the following steps quite helpful in managing debt and planning for a new season:
- Praying and seeking God’s wisdom to deal with debt challenges and financial planning process.
- Though I am a Financial Planner, I did engage a competent financial planner with no conflict of interest. While it me cost me some money, I benefitted from their objectivity and expertise as they reviewed my plan, analysis and investment strategies in regards to:
- Lifestyle and my plan to live within my means.
- Setting up an emergency fund to cover basic living expenses for six months.
- Setting up a fund to cover foreseeable irregular expenses for the next six to twelve months.
- Prudent management of my existing resources and identifying potential areas of change that result in savings that I could channel towards debt reduction.
- Increasing my income through professional engagement and income generating investments.
While individual circumstances will vary, these steps are the building blocks to managing financial resources and will be helpful in managing debts.
Meanwhile you may consider the following options in addition to the above:
- Resolving to stay out of debt by not to taking up more debt (unless it is an emergency and there is no other way of meeting the need).
- Continue paying off your loans if you can, focusing on paying of the smallest loan first and using the freed resources to increase repayment for the next smallest debt (snowball) reducing debt and the number of debtors. This motivates you to remain on course as your progress becomes evident.
- If unable to service your loans, approach your lender and discuss possible alternatives. If you have credit or mortgage protection insurance, enquire about retrenchment cover and repayment holiday if you had made advance payments. Be careful to evaluate the options available not to compromise your future financial position.
- Finally, hold everything with an open hand. If you need to sell off some assets not aligned to your current and future goals, do so at an appropriate time and use the money to settle your debts and invest in line with your goals.
It was encouraging to receive practical help from scriptures. Below is a sample of the verses that proved very helpful as I managed my debts.
- Proverbs 20:18 Plans are established by seeking advice; so if you wage war, obtain guidance.
- Proverbs 24:27 Do your planning and prepare your fields before building your house.
- Proverbs 27: 12 The prudent see danger and take refuge, but the simple keep going and pay the penalty.
- Exodus 14:13 But Moses told the people, “Don’t be afraid. Just stand still and watch the Lord rescue you today. The Egyptians you see today will never be seen again.
- Luke 1 (Whole chapter)
Verse 37 For nothing will be impossible with God
Join me in our next issue, we will explore the role of debt in personal finances.