Growth & Jobs | Overwhelmed by loans? Manage debt using these five steps

FINANCIAL EDUCATION consultant at the JN Foundation, Rose Miller, says managing personal finances has become more crucial than ever, given the existing financial environment. According to recent media reports quoting a report by the Bank of Jamaica, more Jamaicans are falling behind on their regular monthly payments on loans.

The reports noted that past-due loans, which are loans on which the borrower has made no payment between 30 and 89 days, rose 32.1 per cent at deposit-taking institutions as at the end of fiscal year ending March 2024, over the previous year ending March 2023.

Pointing to the various common forms of debt people carry, including credit card debt, student loans, consumer loans and mortgages, Miller advised that persons overwhelmed by debt should follow these five steps to help them regain control of their financial health.

1. ASSESS YOUR CURRENT DEBTS

Before you can tackle debt, you need a clear picture of what you owe. Start by listing all debts, credit cards, personal and student loans, and any other loans, including any ad hoc or informal loans. It’s important to note the balance on each, interest rates, if applicable, and minimum monthly payments for each debt. The purpose is to get a good understanding of how much you owe.

2. CREATE A REPAYMENT PLAN

Understanding your debt landscape will enable you to take the next step, which is to develop a repayment plan. This involves deciding how much you can realistically pay towards your debt each month; the best way to achieve this figure is to create a budget. One popular debt management strategy is to allocate extra funds towards clearing the debt with the highest interest rate first (the ‘debt avalanche’ method), or putting these extra funds towards clearing the smallest debt first (the ‘debt snowball’ method). Both methods have their benefits: the avalanche method saves more on interest, while the snowball method can provide psychological wins by eliminating smaller debts quickly.

3. NEGOTIATE WITH CREDITORS

If you’re struggling to keep up with payments, it’s worth reaching out to your creditors to negotiate better terms. Many lenders are open to offering reduced interest rates, extended repayment periods, or even settling for a lower amount than the original debt. This can make monthly payments more manageable and prevent accounts from going into default, a situation that would adversely affect your creditworthiness.

4. CONSIDER CONSOLIDATING YOUR LOANS

Consolidating your debts by rolling them into a single loan will simplify repayment and enable the debtor to gradually regain control of their finances and improve their financial well-being. Almost all deposit-taking institutions offer a consolidated loan. Shop around to identify the one that will provide you with the best terms and conditions.

5. BUILD AN EMERGENCY FUND

Be intentional about not getting into further debt. Establishing an emergency fund can assist in this regard. This will enable you to take care of some emergencies without the need for additional loans.

Effectively managing debt takes discipline and grit, but the benefits, such as preserving your creditworthiness, enjoying peace of mind, physical and psychological well-being, plus the prospect of financial security, make the sacrifice worthwhile.