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Morris Mpala, MoB Capital Limited
IN general it takes money to make money. The only difference is whose money it will be in the process. It could be your money or otherwise but the fact still remains, it’s money. One way or the other this could come in as debt.
You have heard about good doctor /bad doctor or good cop/bad cop. The same can be said about debt. There is good/bad debt. By and large when we talk about debt we explore the following:
– The type of debt and its quantum
– Reason for getting into debt
– Affordability of the debt
Debt isn’t necessarily all bad. There are times when debt is good. We can’t have all the financial resources at our disposal thus once in a while the need to borrow. Like they say, if possible and where it makes sense, “don’t use your own money” but make use of other people’s money.
But we need to borrow responsibly. Borrow for a good reason. When you borrow use the funds for the intended purpose. Finally don’t stay borrowed for too long. Settle your debts to avoid debt overhang that is if you borrowed for an existing genuine financial challenge then settling wouldn’t be a stress.
Debt can be addictive and as in addiction cases withdrawal symptoms can be severe. If it becomes a problem seek professional help to manage your debts to avoid a vicious circle of in and out of debt that might lead to poverty. MoB Capital offers such services at nominal charges as they negotiate with your lenders and give a workable plan to settle your obligations without further strain. If you decide to go into debt, shop around to get the best terms and conditions that suit you. Understand fully what you are getting yourself into and know all the consequences of your actions. The devil is always in the smaller prints. Read and comprehend before appending your signature. Where possible let it be explained to you in a language you are well comfortable and conversant in.
Failure to settle debts can have serious ramifications in your future debt seeking adventures. It might cost you car loans or mortgage loans because your previous credit history will have been bad thus had you black-listed. It is advisable to be in good standing order by servicing your debts. Do you know a smaller debt is better than not having debt at all when it comes to credit worthiness?
Good debt
Not all debts are bad. Choose the ones worth stressing over like a mortgage. Take good debt only, if not sure then consult experts who are in the know.With good debt you leverage to accelerate wealth building at optimum cost levels. It’s affordable and leaves you better off financially. Good debts include mortgages, business debt, affordable car loan and student loans.
Bad debt
Debt you can’t afford to pay. The repayments drain your wealth and normally based on impulsive decision making. These leave you worse off financially and do not add any economic value to your financial portfolio.
Debt to Income Ratio
Mathematically this is all your monthly debts payments divided by your gross income(s). It denotes your ability to manage (monthly) your repayments to the money borrowed. It’s your ability to manage paying off debts you have. The recommended ratio is a maximum threshold of 43 percent meaning for every dollar you earn you would only have 57 cents to spare after all your debts have been paid. Fifty seven cents becomes your excess income after debts have been settled. As at current economic levels and socio economic situation I do recommend a ratio of under 20 percent as there are some many uncertainties and emergencies.
Paying off debts
Figure out your spending patterns for unnecessary expenditures. In settling debts start off by settling bad debts and aggressively work towards settling all debts no matter how hard it could be.
Get out of debt fast
The need to stop accumulating more debt (regardless it being good/bad) is critical in pursuit of financial freedom. Then spend less than what you are making.
No over expenditure
Finally cultivate the culture of savings and with those savings retire your respective debts. The above is easier said than done. It is a dedicated process. A disciplined approach that involves losing your pride, documenting debt, savings, earning extra incomes, settling your debt obligations timely among many other personal initiatives. It’s about you do what needs to be done as no-one but your self can emancipate yourself.
No debt /debt free
No one is free like a human being who is without debt. There is something quite liberating about not being in debt. As we know debt is bondage and as such freeing yourself from these shackles is of paramount importance to achieve financial freedom. You have to be smart about debt management at all times.
As we approach the festive season we know there is always unplanned expenditures we do warn that there could be serious consequences after the holidays. Spend wisely. Remember your next income could be in February.
CAUTION: Borrowing more than one can afford to repay can cause serious financial difficulties.
IF YOU LIVE IN BULAWAYO PLEASE CONSERVE WATER, IF YOU LIVE IN ZIMBABWE PLEASE USE ELECTRICITY SPARINGLY: SOS (SWITCH OFF SWITCHES). IF YOU LIVE ON PLANET EARTH PLEASE PRESERVE THE ENVIRONMENT
Morris Mpala is the managing director of MoB Capital limited, a Bulawayo headquartered micro-finance institution with footprint across the country.
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