Debt engineering

14 Feb, 2018 - 00:02 0 Views
Debt engineering

The Chronicle


DEBT has always been a very tricky fixture especially when there is an economic downturn or has had unforeseen unfortunate circumstances.

This brings a lot of engineering that needs to be done to increase financial well-being when debt overhang happens.

It is advisable to have a cool temperament when things go southwards as you will need it to negotiate and maneuver out of these tricky situations.

It can be messy so try by all means to avoid selling your collateral to retire debt.

By all means necessary avoid litigation as it will only compound the predicament and going forward blacklisting has far reaching consequences than just the debt.

Some solutions to look at if you find yourself in a debt jam;

Pay off debt

Without sounding simplistic and patronizing, at times it is just best to pay off debts especially if it is relatively expensive.  Just learn to settle your entire financial obligation if funds permit.

Retire expensive debt first

If you have so many debts pay off the most expensive ones first as this frees some funds to use to retire other debts.  Expensive debt is more of a burden and leads to more debt overhang.

Grace period

If in a jam, ask for a longer repayment schedule which is not detriment to one’s financial well-being. The more time you get the more breathing space to get funds to retire the debt without serious ramifications.

Huge repayment

A lump sum once off part debt re-payment is encouraged to reduce your future monthly obligations.  It lessens future repayment obligations.

Interest rescheduling

It is encouraged to negotiate for interest payment schedules to suit your new financial status to avoid any late payment penalties.

Move forward your interest payments to give you space to breathe a little while you regroup. Only do that if and only if it will help, otherwise it could compound the challenge at hand.

Debt transfer/factoring

If possible transfer your debt obligation to your third parties that also owe you. You end up netting off all debts against yours, this you do with those that owe you and are credible debtors.

Interest reduction

Kindly ask for a reduction in your interest costs to manageable, reasonable and agreeable ratios. If you have been a good payer before, you will get a reprieve and that is the sort of relief you are searching for.

There is no harm in trying to get a lower interest rate regime while you recover from the deep end.

Write off debt

If lucky and if possible, kindly ask for your debts to be written off. Why are you laughing at this suggestion when it’s an option?

Increase savings

Cut off extra fat.

Tighten your budget tremendously.

Go back to basics only.

Lose your pride, down grade and use the savings to service and reduce your debts.

No peer pressure.

Do it for yourself.

Get extra income

Derive income from other sources and channel excess funds towards your debt.

It could be a weekend job, after hours or vacation job to augment your income.

You might even get a new high paying job.

Increase loan tenure

Debt restructuring.

You might want to negotiate for a revised longer tenure for your debt that decreases your monthly obligations.

It is a temporary reprieve then use above applicable strategies to retire debt.

Chase your debtors

Be proactive with your debtors as well as you try to get your hands on some funds to direct towards debt servicing.

Ask for early payments from your own debtors.

You might ask your creditors to chip in especially if its equity the better as it comes free of interest.

Or swap debt for equity if in business.

Do not leave it too late when you see you cannot manage to service your debt.

Involve your creditors and come up with an amicable resolve which does not jeopardise your future credit record.

If all else fails, let the security go and retire your debt and re-strategise.

Start afresh and rebuild on a new slate but try to get a better negotiated deal. If you are a good person, chances are, you will get a good deal that could leave with some change and a clean name.

Variations of terms and conditions

Have a look at the finer details and re-negotiate your original terms and conditions.

Ask for a waiver on penalties, charges and any fees that will sink you.

Debt Advisor

Some of these issues are better handled by a third party that will manage your affairs effectively. Engage a debt counsellor or advisor to manage your affairs while you are stabilising your financial boat.

Be proactive with your financial well-being.

You need financial hygiene.

As a financial doctor, you can thank me later seeing for such advice some people are paying top dollar for it while you getting it for free.


Morris Mpala is the managing director of MoB Capital Limited, a micro-finance institution with footprint across the country.

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