The financial scene is littered with fallen soldiers. They entered the battle field with an intention to conquer, but they got waylaid, cornered, outwitted and finally broken. I am talking about money. I am talking about borrowing. These soldiers did not go down without a fight, they were courageous and gallant. In the last battle, they needed support, they needed urgent emergency help. It did not arrive on time. This article is a last-minute support for you who is struggling with debt, but it also provides vital cautionary skills for those just entering the financial battle field.

First things first. How do you usually get into debt? More often than not, a need arises out of the blues and impulse tells you that it must be satisfied now even if you do not have the resources to do so right away, leaving you with no option but to borrow. We humans are wired to be lazy and to take the easy way out, therefore instead of thinking of alternative solutions to meeting the arisen need, we think of the fastest way out, which usually turns out to be borrowing.

You borrow because you did not have an emergency kitty in the first place and more often than not, your expenses are always ahead of your income.

Once you have borrowed, your need is met, leaving you momentarily satisfied, but soon this bubble is busted, for the lender comes knocking, demanding to collect more than what was lend to you, in the name of interest.

On the first attempt by the lender to collect money from you, you may turn him away successfully, but he will come back stronger each time and the pressure will mount till you are forced to borrow elsewhere. There is a real awkward positive correlation between urgency to borrow and interest rates, hence each new lender will notice your desperation and charge you more. This increased interest is an additional expense on your already miserable income verses expenses situation.

And the cycle continues till you are buried in the heap of debts and become a statistic of this deadly dragon called borrowing on the financial mine field. The stigma from society does not help the situation either and most individuals would rather keep quite than talk about their financial difficulties.

How do you avoid this and majestically rise out of this heap and trod the financial landscape like a colossus again in less than six to twelve months? Below are five tips to include in your plan, in addition to personal focus and resilience while handling debt.

1. You Are In A Shit Hole, Stop Digging Deeper.

You have debt, big or small it is still a debt that you must service. However, on the other hand, life must continue, and needs keep jumping at you out of the blues.

Before borrowing again, it is important to ask whether the arisen need is a matter of life and death. Can you postpone this need or must you have it now? If it’s not life and death, good judgment dictates that you postpone it and find better ways of financing like saving and or working for it.

2. Learn How To Calculate Borrowing Costs And Use That Information To Your Advantage.

To borrow, you must be aware of a few important concepts like the difference between annual and monthly interest rates, principal and interest repayment amounts, and even the difference between lenders such as shylocks, Sacco’s and Banks.

How are interest and monthly repayments calculated, what is the difference between simple and compound interest and what are the consequences of defaulting on your repayments?

If you must wait for your financier to calculate any of the above financial parameters for you, you are still a toddler in matters borrowing and you should not be borrowing, but rather joining a financial education class to grow your capability in this matter.

Knowing your borrowing costs is extremely important because the nature of the lender and the interest rate increases your risk to default significantly. If you borrow from a shylock at a rate of 20% per month, your repayment to him will be double in less than 4months. It means if you borrowed Ksh100k, you will pay him Ksh200k in 3 months. Compare that to borrowing from a bank at 14% per annum!

This information provides an opportunity to identify friendly and cost effective lenders where you can swap expensive debt for cheaper debt.

3. Pay Your Bills And Loan Repayments On Time.

If you are delaying or missing on your bills and loan repayments, this is exactly a red flag symptom that you are struggling with debts and expenses. Unlike expenses which you can avoid by stopping to consume completely, debt is a fixed outflow till you have completely repaid it.

Calendarize your repayments and set reminders a week before payment date.

4. Prioritize Which Debts and Bills To Pay First

Start with the most expensive debts and pay your most needed bills. Cancel subscriptions that you do not need and where a lender allows you to pay a minimum amount, consider utilizing that facility to reduce on the risk of defaulting on other repayments.

Defaulting is expensive as it comes with late payment fees and penalties plus additional interest charges that you would rather avoid now.

5. Know Who and How Much You Owe

This should be the first tip right. Do you have a list of your lenders and how much you owe them? In Chinua Achebe’s book titled “Things Fall Apart”, Unoka, a borrower, had drawn lines on the wall as a record of his debts. The longer lines indicated lenders whom he owed more and the shorter ones those whose debts were little. He is reported to have used these lines to taunt his lenders when they came to collect by showing them that their lines were shorter hence they should wait till he has paid the longer lines which represented bigger and more important borrowers.

6. Recognize And Appreciate The Danger In Borrowing

In a state where you are pressured by a need, be it physical like hunger or external like school fees, you are not reasoning with your head, but rather, you are looking at the problem at hand and trying to resolve it with the most minimum mental effort. You stupidly count yourself lucky because there is a lender willing to bail you out, yet you are welcoming yourself into a debt trap, which will take you years to overcome, because your income is not going to grow overnight for you to afford to handle the repayment and the interest thereof, especially where you have borrowed for consumption purposes.

7. Use A Budget To Manage Your Expenses And Debt Repayments Wisely.

Maintaining a budget helps you allocate enough money to cover all your expenses month by month. By having an annual budget and tracking it on a monthly basis, you can take early action like borrowing or saving if it looks like you won’t have enough money for your bills in any future period.

A budget also helps you plan to utilize any extra money you have left optimally after expenses are covered. You can use this extra money to pay off debt faster.

8. Keep Your Lenders Close.

These guys have financed you, but they may not necessarily be your friends. Most of the time they are profiteers who will do anything to recover their funds from you. Take the case for Jona.

Few months ago, Jona borrowed money from a shylock who promptly started collecting 20% interest from him after 30 days of advancing the money. The shylock kept pushing Jona for interest payment every other month till Jona started borrowing from his colleagues and friends to repay the Shylock.

The situation got worse when the colleagues started demanding their payment till he could not afford food for his own family. His wife herded their son and left him for a neighbor (I guess the neighbour could buy food and meet her financial needs).

Jona got into depression and couldn’t continue being productive at work at the rate he’s expected. His boss quickly put him into a performance management program meaning that he could not access bonuses, pay increments, loans or advances, compounding his money woos.

In his state of depression, Jona has not been able to keep up the pressure and has is longer receiving calls as he does not know which lie or promise to give to his lenders.

Both the shylock and colleagues have been agitated and have continued to chase and load interest on the uncollected amounts. Colleagues have made it obvious to other staff that he owed them, compounding Jona’s stigma.

The shylock had, after realizing that he could no longer collect the repayments, promptly wrote to Jona’s employer and kept reminding the employer that Jona had not paid him. He continuously sent auctioneers and police to Jona’s office till the employer decided enough was enough and last month, Jona got sacked to face the unfamiliar world of hustling.

What’s next for Jonah?

Lessons learnt; by being in constant touch and communication with your lenders, you can avert some extreme actions from the lender by negotiating for time and as well as forgiveness or reductions on interest.

9. Practice The Fundamentals Of Borrowing.

Why are you borrowing? Are you borrowing to spend or to invest? If you are borrowing to spend on luxuries and entertainment, you are effectively living beyond your means and this is a recipe for debt problems. Borrow to finance life and death needs. What’s the life and death in taking your girlfriend out that you must borrow?  Isaac in the bible toiled for a whooping seven years to get the girl he wanted. Why is the next smart phone a priority for you and why are you borrowing to indulge in binge drinking or crazy house parties?

Borrowing is a very effective way of building capital because it’s the only way that owners of capital share this economic resource with owners of ideas, who then use these funds to convert the ideas into useful products and services for sale at a profit, effectively redistributing wealth and capital within the populace and reducing poverty. By borrowing wisely, we bridge the timing gap between income and expenses and get continuous business operations, because lack of working capital means no production in business.

Once knowledgeable in matters loans, borrow wisely to invest and not to spend. Put the nine principles above in practice in your money dealings daily and you will be on the good side of debt. Investments that you pump your money into should be well researched to earn a return higher than the interest on the loan. Seek information and help from your financial partners when in doubt and remember all money borrowed must be paid back and interest paid to the lender forms part of your expenses which can escalate beyond your capability, effectively jailing you in a debt trap.