Oran Hall | Regaining control over your finances

All does not have to be lost if you have lost or are losing control over your finances such that you are carrying more debt than is desirable.

There are many practical steps from which to choose – assess your current financial situation, create a realistic budget, develop a repayment plan, consolidate your debt, negotiate with your creditors, limit new borrowing, use credit responsibly, build an emergency fund, draw down on your savings and investments, sell assets, increase your income, create an emergency fund, and seek professional help.

First of all, assess your current financial situation by establishing how much you are earning and listing all your debts – credit cards, personal loans, student loans, mortgages, hire purchase, informal loans.

For each debt, record the outstanding balance, the rate of interest, the monthly payment, and when the debt is to be repaid. Compare your debt payments with your monthly income. This will help you get a clear picture of your situation.

Create a realistic budget and stick to it. Outline your actual monthly income and your expenses, including your debt servicing commitments.

Be truthful. Identify the areas where you can cut back and make the necessary adjustments, and ensure that the sum you allocate to debt servicing is adequate to meet your commitments. Avoid taking on new debt and do not spend more than you earn.

Develop a repayment plan. Address delinquent debts first. The debts with the highest interest rates cost more in the long run; paying them down first will save interest eventually, but this may put pressure on your budget initially. On the other hand, paying off the smallest debts first will let you have more money to put towards your larger debts.

It should also put less pressure on your budget. In any case, always pay at least the minimum sum required on all debts to avoid penalties and damage to your credit score.

If you have multiple high-interest debts, seek out opportunities to consolidate them into one loan, preferably at lower interest and a longer payment term, to simplify your payment and potentially reduce your cost.

This may not come easy. It costs to get such loans – like all other loans. You will likely need collateral. You will need a good credit score, and you will need to show that you have the capacity to pay, not just the willingness.

Do not wait till your back is against the wall. Engage with your creditors and enter negotiations with them as soon as you realise that your situation is becoming difficult. Discuss with them the available options, for example, lengthening the term of the loan, thereby reducing the amount of the monthly payment, although you will likely pay more interest ultimately.

Spend responsibly and use credit responsibly. Surprise yourself to see how much you can do without some items. Deferring purchases is one way to make this discovery, and limit the use of your credit card.

Use the card for convenience, not to amass debt. Therefore, only spend as much as you can pay when the bill is due. When that time comes, pay in full and on time.

Increase your income, if possible. You can turn your skills into income. You can also use your assets to generate cash to help you ride out the storm. For example, you can borrow from your savings.

As it is a loan, you must repay it. You can also sell some of your investments and other assets. Once your financial health has been restored, you can begin the process of re-building your portfolio.

Monitor your progress. Review your debt balances regularly. Check your credit report and all financial statements and report any errors so that you always have an accurate account of your financial situation and can determine that you are making progress.

You do not have to do it alone. Have at least one other person in your family engaged in the financial management of the family. This will make you accountable and ensures continuity in the event that you are not able to be involved at some point.

If necessary, seek professional help from a reputable credit counselling agency or financial advisor. The benefits should outweigh the cost.

There are many ways by which you can lose control of your finances. Being unprepared for emergencies is one. To get around this, build an interest-earning emergency fund. Set aside savings specifically for that purpose. Even small, regular contributions can provide a safety net and peace of mind in emergencies.

Consider alternatives to savings accounts. Some alternatives: money market accounts, certificates of deposit, and treasury bills. Compare the rates, the fees, and the ease of converting to cash before deciding.

To make your funds readily available without risking penalties, maintain a ladder whereby the maturity dates vary, and create another important source of liquidity by securing relevant insurance coverage.

An unhealthy financial situation does not have to be chronic or to be a death sentence. A willingness to make short-term sacrifices, to exercise discipline, to plan well, to seek help, to keep current on your true financial situation, and to bring spending in line with income can go a far way in restoring your financial health.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. finviser.jm@gmail.com