This is the fifth post in a series aimed at equipping you with the knowledge and skills to enable you to make more informed decisions about your finances and lifestyle. Please read the first post here
http://bit.ly/1sF655J. Breeze through the second post here
http://bit.ly/1sHiRAB. Read the third post here
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Many people do not understand how expensive debt can be. Buying on credit and borrowing money is not a good idea. It is wise to save money if you want to buy something.
• Borrowing money from the bank maybe a better idea because the interest you are going to pay there is better than the interest you would pay to a loan shark.
• Even if you borrow make sure that you have worked out the repayment plan.
• The shorter the repayment period, the lower the amount you pay the bank and the longer the repayment plan, the more you pay back.
Here's How To Set Up A Debt-Eliminating Budget
The key to a successful plan is to recognise that your main focus should be to save and eliminate debt. If you are in the fortunate (and rare) position of not having any debt you can and should start a savings plan right away.
If you are in debt and need to get it under control you can start with as little as N5 000 per month. Some people claim that there is no way they can find this in their budgets, however, cutting out a few luxuries until you are on your feet, will free up the cash you need.
You need to think about all the luxury items that you buy each week that can be cut without too much pain. It could be a daily trip to the deli for a coffee, a few packs of cigarettes, or trips to malls and restaurants with friends. Before you start a debt elimination plan you need to work out exactly how much you owe.
Once you have a clear picture of what your debt situation looks like, you can start with a debt elimination plan. This is a bit complex but if you master it, it can help you clear your debt very effectively.
Remember, there are three rules that you have to follow for this to work.
Rules:
1. Find extra money in your budget by cutting back on unnecessary expenses. Petrol and
airtime or aso-ebi for example. You will need to make some sacrifices in your lifestyle to get out of debt, but the effort is well worth it.
2. Keep up the payments on your other debts while you are paying the target debt.
3. Do not spend any more money on debt. In other words, do not add new purchases to existing debt.
Step 1 - Identify the smallest debt you have and add extra money to it, so as to pay it off quickly.
Step 2 - Once it is paid off take this payment and add it to any surplus money you have and pay off the next smallest debt.
Step 3 - Take the payments from the two paid off debts, add any surplus cash and then target the next biggest debt.
