Debt is not new to us; we have all borrowed before and many of us still borrow for one reason or the other. Debt, despite having originally come to make things easier and to aid in the earning process of money, has left many people with a bitter taste in their mouths. Many people are in a financial quagmire because their debt situation seems out of control. They have been trapped and the situation seems to be getting worse by the day. Unfortunately, a good number of people are not aware that they are trapped. The debt trap is a situation where repayment of debt becomes difficult or impossible. The process of entering into the debt trap is often a seamless with effects getting felt when the squeeze in the trap gets crazy.
Today, I write to ask an uncomfortable question; are you trapped in debt? Do you know how to tell if you are? In Focus Talk 17/52/2017, I challenged you to come up with a list of all your debts and feedback has been overwhelming since then with majority of the people confessing that they were indebted more than they ever thought. Armed with that list, it becomes important to answer the question of whether you are trapped or not. Different people exhibit different tendencies when trapped in debts but certain tell-tell signs cut across. The following are some of the common signs; if four of them describe you, it might be the wake up call to seek help.
You are likely to be trapped in debt if:
- Your total indebtedness outweighs your total asset value.
- Your debts start running overdue; you begin to default and constant arrears show up.
- Some debts become impossible to pay and you relegate them from the repayment table.
- You find it difficult to run your monthly budget; you have to borrow more to bridge the perpetual monthly deficits.
- You begin borrowing (and sometimes expensively) to repay other debts and/or their interest amounts.
- You make salary advance look like another salary.
- You borrow to pay, to borrow again to pay the initial source (renewal of debt). This is common with mobile phone based loans. What many people do not realize is that every time they complete such a cycle, they have to borrow more to repay the first borrowing due to the interest amount. When you borrow Ksh.10,000.00 from source A in order to pay off source B; the next time you re-borrow from source B, you will be given say Ksh.9,500.00 after an upfront deduction of Ksh.500.00 as interest (in this case, your new indebtedness is Ksh.10,000.00). You will need to borrow an extra Ksh.500.00 from source C in order to fully pay off source A, assuming source A was interest free. However, if source A charges interest of say 5%, you may need to do another borrowing of Ksh.500.00 from source D in order to pay source A a total of Ksh.10,500.00. In such a case, your total indebtedness rises from Ksh.10,000.00 to Ksh.11,000.00 (Initial Ksh.10,000.00 from B + Ksh.500.00 from C + Ksh.500.00 from D)
- Your credit card is always chocked to the brim; you welcome any move to increase your card limit.
- You begin to dodge calls from your lenders.
- You become a frequent borrower from the shylocks.
- You begin selling household/personal items to repay loans/interest.
- You opt to only pay the interest portion on your short term debts and have the principal rolled over to the next cycle.
With the knowledge of your debt trap situation, YOU CAN DO BETTER!
Roy Okonji,
Debt Management Consultant, Motivational Speaker and Author.
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Write to roy@focusuniversal.co.ke
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