Mon | May 29, 2017

Resolving messy debt problem will be painful

Published:Sunday | May 24, 2015 | 5:00 AM

QUESTION: I am currently in a really messed up situation called debts. I have two loans that I am paying for plus monies owed to a brother of mine.

I recently got married and my husband and I took out a joint loan to start life. However, he went abroad on the work programme and all of a sudden he changed and got married there and left me in debt. I also had another loan with another financial institution. We also borrowed some money from my brother and now he wants it back too.

I don't even know where to start repaying all these debts. I really need some advice.

- Allen

FINANCIAL ADVISOR: To reduce personal debt, it is often necessary to make serious lifestyle changes. To generate funds to reduce debt requires increasing income, reducing spending or both.

You have not said how old you are but it seems that you are in the early career phase of your life - which tends to be a difficult period as income is generally relatively low and expenses are generally high as there is usually so much to acquire to set a foundation for life.

There are several ways to increase income: use skills and hobbies to generate new income and non-cash income, get a part-time job, get a better-paying job and increase investment income.

Reduce expenses

Most of these standard approaches require time to work, but your need for more cash is immediate and the economic climate is not such that you can readily succeed in business or sourcing additional employment.

Reducing expenses is probably the approach that can best help you to make more funds available to service your debt. But this approach could be very limited as it might not be able to generate a meaningful flow of funds, particularly if your income is low.

To reduce your expenses, you could reduce fixed expenses such as rent; this would mean re-locating to an area where rent is cheaper. If you have not started to do so as yet, you should consider reducing or eliminating your discretionary expenses and focus on expenses that relate specifically to maintaining a basic lifestyle. In other words, spend on only what is essential.

As hard as it may seem, you could take a look at the assets you own and make a decision to dispose of some of them to free up funds to pay your debts. The truth is, the money you owe to the financial institutions could increase if you do not service those debts satisfactorily.

Seek more manageable terms

Of course, you could have a discussion with your creditors to see if they would agree to terms that are more manageable. Your challenge is that you are now required to service debts alone whereas, previously, you had company.

As difficult as your situation is, try not to worry as this could put your health at risk and further worsen your financial situation.

The following advice is not for you now but it can be helpful to you later and to other readers. Borrow what is within your ability to repay. Borrow to acquire assets that appreciate in value or generate income. Set up an emergency fund. Determine how you will repay your debt before committing to a loan. Get into the habit of making and operating a realistic budget.

For persons planning to or hoping to marry, avoid starting married life in debt. Having to deal with debt so early can cause too much stress and broken relationships. Start simple, learn to save and grow steadily. Nobody needs to know what happens at home.

Borrowing lets us spend tomorrow's money today. The process of restoring equilibrium can be very painful.

n Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author or 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.

finviser.jm@gmail.com