CREDIT MANAGEMENT
Navigating The Turbulent Personal Debt Cycle
By Wasilwa Miriongi
When a heading “ Debt trap : Ensnared by loans , women turn to suicide as escape ” is published in a major daily , it just reveals how deep we have sunk in debts as a society and that debt cycles are real . It is no longer in doubt that our degree of over indebtedness is at it ’ s highest level .
One personal finance and religious leader Stephen Adei in the book “ 12 Keys to Financial Success ” brands consumer debt as the most formidable enemy to financial independence for a modern person .
The reality is that debt accumulates , and can turn out to be so overwhelming such that one day the consumer will realize that they owe lenders so much money that they do not know what to do anymore . In fact many people cannot answer the question : when will they pay off their debts ?
As a debt counsellor I have once encountered one consumer who has borrowed from more than fifteen lenders , since he is a banker all the unregulated lenders found it easy to lend him , remember all regulated lenders observe the consumer protection so are unlikely to undertake such reckless lending to a consumer .
Debt is such a powerful tool , it is such a useful tool , it is much better than colonialism ever was because you can keep control without having an army , without having a whole administration . Small debts are like small shots ; they are rattling on every side , and can scarcely be escaped without a wound ; great debts are like cannon ; of loud noise , but little danger .
There is a lending saying that says “ A Banker should not be the one who lends umbrella when it is shining and takes away when it is raining ” this has not been the case with some lenders who lack loan restructuring mechanism and dispute resolution methods . They have continuously harassed borrowers some with motives that seem malicious .
We live in an era where credit availability is at the highest level , with government programs like , youth fund , hustler fund all being added to the crowded basket . This has moved us from creditworthiness to the level of to each according to his / her borrowing appetite .
Beside the above the consumption patterns of conspicuous consumption means people have to sustain the same . As a Capitalist lifestyle , Conspicuous consumption is one
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The ‘ debt cycle ’ is an out-of-control spiral that starts with an expense that is beyond the current budget , combined with ill-management of the available credit line , leading to missed due dates and accumulation of extra charges and penalties , concluding with continual borrowing that leads to increased debt , and eventual default . of the trends that is blamed for the rise in people crippled by debt .
The methods used by debt collection companies have only aided in pushing the borrowers to the brink , one customer I counselled confided in me that whenever she reported on duty , she was always anxious and nervous , any time the digital lenders could call even when in meeting making her very unsettled to work . Debt collectors usually call at different time intervals , sending messages and calling from different numbers that customers are bombarded with all this channels , it is called the Boomerang method for those who don ’ t know it .
One may argue that the current inflation is to blame for increased level of borrowing but it ’ s a known fact that you cannot spend your way out of recession or borrow your way out of debt . It is the habit of robbing Peter to pay Paul that has contributed immensely to the debt levels that households are currently experiencing .
Remember the borrowing is done oblivious of the Effects of debt which both have emotional costs and real cost .
On the Emotional Cost , a debt is a legal obligation you have to service before you buy food for the month , pay school fees for your children or go to hospital . When consumer debts exceed 20 % of one ’ s income , its emotional toll makes it one of the topmost stress factors in life along with death of your spouse ! The emotional factors include : stress , anxiety , depression , feelings of guilt , shame and failure leading to low self-esteem .
On the other hand for the Real Cost of Debt , it is obvious that the lowest interest you will pay on a loan is 20 % unless you are borrowing from Sacco ’ s . Even the Mortgages are not cheaper either , more
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