PERSONAL FINANCE: 5 steps to getting out of debt

How do you get out of debt? By paying it off. Sounds simple, but it is not necessarily easy to do.

In this day and age of easy credit, more people are finding themselves tangled up in huge amounts of debt.

What is this debt being used for? To party, buy phones, pay other loans, entertain, gamble, pay school fees, buy groceries, etc.

Then there are the bigger items like cars, entertainment systems, furniture, emergencies. This is called consumption debt.

If you are in this situation and life looks bleak, what can you do to dig yourself out of it?

1. Stop borrowing. From the day you took that first loan, debt became a habit. Borrowing can be addictive.

If you look back to that first instance, was there another course of action you could have taken? If most people are honest with themselves, that answer is yes. You could have delayed something, figured out how to make the extra shilling you needed or just done without whatever it is you were borrowing for. But the borrowing was easy and available so there was no need to think further.

The next time you were short of money for anything, you instantly resorted to borrowing. Then it happened again. You will keep borrowing if you don’t put yourself in a position to think of alternatives.

2. Something has to give. Many people think they will get out of debt when they have extra money to pay the debt. So they are usually waiting for some sort of windfall, income increase, deal to do so.

You will have to give up something. Cut off one expenditure in your life and use that to pay down debt. We’d like get out of debt and still stay in our comfort zone but that is not possible. Don’t be general about it.

You need to be very specific so that it can result in an action. For example, don’t go out for a while and use that money to pay down your debts.

I have spoken to people who confess that they pretty much drink the balance of their car loan in the course of the year yet complain about having the loan.

3. Sell what you do not need or cannot afford to have. If you find yourself taking a loan for car insurance, you honestly cannot afford to be driving that car. Sell it!

We find ourselves with a lot of stuff in the house that we do not need. I recently spoke to someone who had three fridges in the house. She is now going to sell two of them.

It may be furniture, clothes, gadgets, items etc. Some of these things are the reason for the debt.

Apart from selling, also look at the recurrent expenses in your life that make you borrow. For example, if you are constantly borrowing to meet rent payments, it means that you need to move to a place you can afford. Forget this fascination with the address.

4. Get comfortable with the word NO. Can you come and meet us for drinks? No. Should I get another pair of shoes? No. Can we go to the Coast this weekend? No. Should I take this loan just this once? No. Dad, please buy me a new toy? No.

Practice that word to yourself and to others. You may say it differently and may want to explain to your child properly why they can’t have a new toy, as long as it ends up in NO.

5. Last but not least, remember getting out of debt is part of the journey and not the destination. Some people have gotten out of debt only to jump right back in. Have a bigger goal in mind so even as you get out of debt, you are also focused on achieving something else. It will also give you the motivation to keep going.

Waceke runs programmes on personal finance & entrepreneurship. Get in touch with her on [email protected]|Facebook/WacekeNduati| Twitter@cekenduati