K. WOODWARD PERSONAL FINANCE
  • Start
  • Bio
  • WealthBlog
    • Books
    • Random Thoughts
    • Femail
    • GirlBanker
  • MyBooks
  • MoneySpot
  • Coach

Visit Your Creditors

15/12/2012

0 Comments

 
Picture
Debts don't just disappear on their own; I'm sure you know that.

Some debt is good. If you borrowed to invest in a business or a property then hopefully your return on investment will more than replace the borrowed funds.

If you borrowed to buy clothes and other wasting chattels - possessions that start to fall in value the moment you purchase them - you need to get rid of that debt fast. This unnecessary burden will hold you back from progress.

This is the strategy I recommend:

1. Don't borrow any more money until you have paid back all current loans.

This is hopefully an easy commitment to make.

2. List your debts

Example:
Fruit Seller - MWK2,000
Uncle James - MWK5,000
Suits for Work - MWK30,000
Handbag Seller - MWK8,000

Total debts: MWK45,000

3. Decide what percentage of your salary you can afford to dedicate to repaying borrowed money. This should be 10% of your salary or more if you can afford it. For example:

I assume that your monthly salary after tax is MWK80,000.

As you will remember from last week's article, MWK8,000 (10%) has to immediately be placed in your Look But Don't Touch (LBDT) account. Leaving MWK72,000.

If you can commit 15% of your monthly salary to debt repayment that is MWK12,000 that you have to set aside.

4. Visit each creditor on your list and explain how much you will repay them every month. Each person should ideally be repaid on a pro-rata basis. However, the fruit seller should be repaid in one go. MWK2,000 is very significant to her.

What do I mean by repaying on a pro-rata basis? 

Pro-rata repayments are based on the percentage of your debt owed to each party: 11.6% of your debts are to your uncle, 70% to the suit seller and 18.4% to the handbag seller. 

So, in the first month your MWK12,000 repays the following amounts:
  • Fruit Seller - MWK2,000 - debt 100% cleared
  • Uncle James - MWK1,160 (10,000 x 11.6%)
  • Suits for Work - MWK7,000 (10,000 x 70%)
  • Handbag Seller - MWK1,840 (10,000 x 18.4%)

In the second month your MWK12,000 repays the following amounts:
  • Uncle James - MWK1,392 (12,000 x 11.6%)
  • Suits for Work - MWK8,400 (12,000 x 70%)
  • Handbag Seller - MWK2,208 (12,000 x 18.4%)

You pay these amounts until each debt is fully cleared. Given this level of debt and a commitment to repay debts using only 15% of your salary, you would be debt free in four months, assuming no interest is being charged.

It is important you tell every debtor exactly what your repayment formula is and how many other people you are repaying so that they don't chase you for payment. If you make your repayments on time and without a reminder you will gain the trust of your creditors.

What if a creditor requests to be paid back first because he has an obligation? You'll need to explain that you simply can't afford to do that. They either agree to the repayment schedule or get nothing back!

From the 5th month onwards you would have an extra MWK12,000 that is all yours. You would be debt free, stress free and well on your way to financial freedom. If your debt burden is larger it will take many more months but you will eventually clear it.

"If your outgoings exceed your income, then your upkeep will be your downfall." Bill Earle

Picture
Click for FREE wealth creation tips by email
0 Comments



Leave a Reply.

    RSS Feed

    Picture
    Heather Katsonga-Woodward
    For 2 years until early 2014 I wrote a weekly personal finance and business column for Malawi's leading media house, The Times Group. The target is middle-class, working African women.

    This is a reproduction of the articles that appeared in the weekend edition of Malawi News.

    Categories

    All
    Business Books
    Business Ideas
    Business Mentor
    Business Partners
    Business Start-ups
    Clearing Debts
    Do It Yourself
    Emotions & Money
    Energy Saving Tips
    Finding Suppliers
    Goal Setting
    Household Help
    Impulse Shopping
    Investing
    Love & Money
    Marriage & Money
    Opportunity Cost
    Organisational Tips
    Pensions
    Planned Shopping
    Property
    Raise Rich Kids
    Saving Tips
    Stock Market
    Water Saving Tips

    Archives

    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012

Picture

Podcast Links

Wealth Blog 

  • Children
  • Financial Independence / FIRE
  • Pensions
  • Retirement
  • Saving
Buy me a coffeeBuy me a coffee
Picture

© 2007 - 2021, The Money Spot™ ~ Make Money, Change Lives!
Heather Katsonga-Woodward, a massive personal finance fanatic.
** All views expressed are my own and not those of my employer ** Please get professional advice before re-arranging your personal finances.
  • Start
  • Bio
  • WealthBlog
    • Books
    • Random Thoughts
    • Femail
    • GirlBanker
  • MyBooks
  • MoneySpot
  • Coach