There are so many financial models of how to deal with debt and many of them are so complex that without expert guidance, many of us get stuck in financial analysis paralysis. It is especially overwhelming when you feel like you can barely pay critical personal expenses like food, housing and healthcare. So, of course you freeze up when you hear that on top of dealing with how to make your money stretch, you have to figure out how to consolidate debt, pay high interest debts first, and a myriad of other financial lingo you don’t understand. What then is simple advice on How to Tackle Your Mountain of Debt?
How to Tackle Your Mountain of Debt
1. Start Digging
I once heard Joyce Meyer say that you got yourself buried into the hole you’re in, one transgression at a time so, you can dig yourself out of it, even if you have to use a spoon. What did she mean by this? She meant that you made daily decisions to choose actions that have landed you where you are and now you can make daily, progressive decisions to get yourself out.
Advice: Don’t think that your debt is too big and your finances too small to pay it off, start with what you can. Make a list of all the debts you have in figures. Write a number next to each, beginning with 1 for the smallest figure debt, 2 for the one after that and upwards. Using the digging with a spoon analogy, you will now see the smallest debt as the one that you can reasonably pay off given your current situation.
By choosing to pay the smallest debt, you choose to take control of the situation instead of allowing it to spiral out of hand and to continue to control you. You pay what you can now, rather than wait for someday when you will have more money to pay it all. You will soon realise that you knock off one debt at a time and with the debt, the shackle your creditor had around you.
2. Plan Payments
Now that you have decided to start with the smallest debt, plan how you will make payments you can stick to. Look at how to adjust your budget so that you can make regular payments. This could be daily/weekly/monthly/quarterly, etc.
Advice: If budgeting with others, share your plan with them for input and buy-in. If you can pay the entire amount at once, please do. If not, however, plan how you can do so in installments that are small enough to manage with current income but also large enough to challenge you and make a dent on that debt. For accountability, motivation and momentum, I would also suggest that you inform the creditor that you plan to make payments, disclosing the instalments you can manage. Then do what you can to stick to it.
3. Separate Funds
Many of us are tested in stewardship when we have finances within reach. As I shared in Stop Giving Out of Pressure, just because you have the funds, doesn’t mean that they are available for whatever comes up. Budget the amount you will allocate towards paying your debt and don’t use it for anything other than paying that particular debt.
Advice: Where you are saving up to make a payment and you don’t entirely trust yourself to not allow other demands, including those of other creditors, get to you, separate those funds you have set aside to pay the debt, from other money you have at your disposal. Whether this will mean that you open a separate account, give it to another to hold for you or seal it in an envelope or safe somewhere, do what you need to do to discipline yourself to focus on paying this debt. It will pay off in the long run.
4. Communicate Default
Believe it or not, confessing your sins does bring forgiveness. Okay, let me not get all deep and spiritual about everything I write. My point is, more times than not, when you communicate to your creditor, be it an individual or institution, that something genuine, unforeseen and unavoidable came up, most are understanding. By communicating, you will keep creditors informed and may even avoid undue default penalties. Creditors can even freeze accumulated interest for debtors who show goodwill and commitment to honor their debt.
Advice: Be very specific about what the challenge is, what adjustment you mean to make, what consideration you request. Then, negotiate a revision of terms that will allow you to get back on track as soon as possible. Where you can pay partially, request to do so, where you need a grace period, say so. Even where you cannot foresee when you can next honour payment, communicate your position and commit to resume payments as soon as you are next able to. When you are able to, do the honourable thing and reinstate your payment schedule, on terms you both agree to.
5. Increase Your Income
If, no matter how smart you try to budget and cut down on personal spending, your current income does not allow you to both pay for basic needs and reduce debts, increase your income. As I shared in What I am Learning from the Wealthy (Part 1), if you can make the time in your day, take on more work. If your time is really squeezed, commit to make time to invest in a product/services that you can offer without constant personal engagement.
Advice: Take time away from the hustle and bustle of life to strategise how you can increase your income. You can get employed (even a second or third job), partner in an enterprise, consult, train or coach others in your area of expertise, make services/products to sell (including online content you don’t have to monitor but can set up to send you direct payments), sell things you no longer need and or can afford to do without, rent out something (room, vehicle, machinery, etc) and the list goes on. Get a trusted other onboard to help you brainstorm ideas and begin taking action. It is especially useful to find someone who also has several streams of income.
You may think you are stuck at your current level of income but you are not. Take time to come up with creative ways of increasing your income. You may be surprised to find that you have been sitting on wealth that you could monetize to pay off your debts.
The Bible says “The wicked borrows and does not pay back,
But the righteous is gracious and kind and gives.” (Psalm 37:21)
I believe this scripture says that the righteous person is honourable and when they have a debt, no matter what it takes, they pay it back. I also think it means that where the righteous person is owed, they are gracious and kind and forgive the debt. It is not for you as the debtor, however, to force the one you owe to let you off the hook.
When you find yourself under a mountain of debt, don’t despair and don’t disappear. Determine in your heart, mind and pocket to dig yourself out of debt and honor that resolve. If you don’t have a shovel, do it one spoon at a time. By choosing to be honourable, God will honour you and before you know it, you would have levelled that mountain and “owe nothing to anyone except to love and seek their best. (Romans 13:8a)