Making debt work for middle income Nigerians

It is not news that a number of middle income Nigerians are indebted in one way or the other to a financial institution. While some are savvy at debt management, many are grappling to meet their obligations due to poor financial intelligence. 

Knowing when to hold or end debt can make a financial difference in our lives. It is only when we know how to make debt work for us as individuals that our financial goals will be accomplished. 

Here are a few tips on how to make debt work for you.

1.    Some debt are good: Borrowing to buy a home or to set up a business usually makes good sense. Just make sure you don't borrow more than you can afford to pay back, and shop around for the best rates.

2.   Some debt are bad: Don't borrow to pay for things you consume quickly, such as meals and vacations, if you can't afford to pay off your monthly bill in full in a month or two. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. If there's something you really want, but it's expensive, save for it over a period of weeks or months to avoid interest charges.

3.   Keep an eye on your cash flow: Make it a habit to check your bank account on a regular basis. Maintain a statement of coming in and going out of cash. Always try to make payments on time as this will not increase the interest rates on them. Keep an up to date cash flow forecast.

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4.    Get a handle on your spending: Most people spend thousands and hundreds of thousands of Naira without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly.

 y down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on.

 

5.    Pay off your highest-rate debts first: The key to getting out of debt efficiently is first to pa

6.    Don't fall into the minimum trap: If you just pay the minimum due on credit-card bills, you'll barely cover the interest you owe, to say nothing of the principal. It will take you years to pay off your balance, and potentially you'll end up spending thousands of dollars more than the original amount you charged.

7.  Watch where you borrow: It may be convenient to borrow against your home or your Retirement Savings Account to pay off debt, but it can be dangerous. You could lose your home or fall short of your investing goals at retirement.

8.  Expect the unexpected: Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you don't have an emergency fund, a dysfunctional prepaid meter or damaged car can seriously upset your finances.

9.    Don't be so quick to pay down your mortgage: Don't pour all your cash into paying off a mortgage if you have other debt. Mortgages tend to have lower interest rates than other debt. If your mortgage has a high rate and you want to lower your monthly payments, consider refinancing.

1   Get help as soon as you need it: If you have more debt than you can manage, get help before your debt breaks your back. There are reputable debts counseling agencies that may be able to consolidate your debt and assist you in better managing your finances. But there are also a lot of disreputable agencies out there.