The best time to get out of debt is when lenders are stricter in giving out loans. That time, it may be argued, is now. When lenders change the rules of engagement, consumers of debt should learn and also change their rules of engagement.
Most lenders have changed rules of engagement in an effort to strengthen their collections in the face of over indebted customers. The embattled African Bank stated recently that they consider one missed instalment as bad debt. Such accounts are handed immediately to debt collectors. As we wrote several weeks ago in this column, if your account is handed over to debt collectors, it will obviously grow, which spells bad news for you.
A person who is blacklisted may see that as a curse, but that is actually the best time for them to get out of debt. With no official access to more debt, the only thing they should do is work hard to dig themselves out of the hole. This is not time to panic, but time to think clearly out of the box they’re used to thinking in. You should thank your creditor for being stricter, not beg them to be more lenient.
Debt can be addictive. When you are used to operating on other people’s money, you might consider yourself accursed when it’s no longer available. But what you need to think about is what I call creative increase.
The concept of creative increase has to do with you finding alternative sources of finance that do not include other people’s money, or debt. A business that cannot get debt finance can be financed through equity partners. That means finding people who will give you money for your business projects in exchange for a stake in the business. That of course requires proper business valuations by professionals, not just a thumb suck.
Individuals who are seeking loans for projects can temporarily freeze their projects and focus on creative increase. By taking a year or two of not taking any additional debt, but rather focusing on paying off existing debt, may give you the break you need to recollect your thoughts and plans. When you finish paying off one loan, don’t see that as an opportunity to take on more debt, but rather, as an opportunity to accelerate the repayments on your remaining debts. If you are done with paying off debt before your two year period is over, you can increasing your saving and investment ratios.
If you are used to financing your life through debt, this may be the best time to give up that credit card and focus only on paying it off. Creative increase is about focusing on revenue creating activities. A business has to be deliberate about its marketing and sales campaigns. An individual has to be deliberate about creating additional sources of income. At financial crunch time it is not enough to rely on only one source of income.
Make a list of all potential sources of income in addition to your normal income. Create a plan to explore and exploit all such potential sources and turn them into cash. Allocate any additional cash that you generate to whittling down debt. Do not direct any such cash to new projects that might get stuck along the way before they’re complete, unless you are certain that such projects will help you in creating more cash.
If you go to a lender and they will not lend you money, consider that a blessing, and work with what you have. It’s time to think outside the box.