Taking stock of your debts/loans;here’s what you need to know.

Whoop!Whoop! we have finally made to the last post of the Taking stock series for the Month of May,Thank you!

I am so excited you could join us in our Taking stock journey from an;

• A 5-teaser take stock questions
• A 5-Investment goals plan
• A 5-step savings plan
• A 5-step budgeting plan

And finally today we wrap our series with A 5-step debt management plan.Seems like 5 was our May lucky number.

Let’s start with the basics. If there is something you want to buy e.g a house,land or fees and you don’t have enough money to pay for it, then you may be tempted to borrow.

The person,institution or an app that lends you the money is commonly known as the ‘lender’ and most times they will charge you for the privilege which is called interest.

The amount of interest you pay will depend on how much you are borrowing, in what form, for what purpose  and after how long will you repay.

The more risk they feel they are taking, the more interest they are likely to charge you.

Most loans in Kenya will require you to give them  a security which is basically the right to sell something of yours if you fail to repay them.

Here’s how you take stock of your debt;

Take stock of where you’re at.

Part of the reason for staring this blog was to inspire ourselves to create these money goals and stick to them, holding each other accountable.

Do a Breakdown of all your current debts and their current status i.e are they actively repayed or defaulted?What is your most debt on?Are you comfortably servicing your debts.

Knowing where you are debt wise allows you to make a more thought decision on your debt management.

Do the math

We recently had a random discussion with a group of friends whom one of us wanted to get a loan for a family emergency.

So she quickly went to her phone and downloaded branch.Branch is a Kenyan app that makes it easy for you to access credit anytime, anywhere by completing an application in seconds and receive your loan straight to your account.

This app surely works because it offered Ksh 3000($30) at an interest of Ksh 400 (13.3% interest) to be paid within a month.

As she was debating on whether the loan was worth it,one of  our friends told us of how he got a loan from  KCB mobile banking of Ksh 11,000 at an interest rate of Ksh 450 (4%) to be repaid within a month!

See the difference?

Lender	Loan amount	interest	repayment period
Branch	ksh3,000	Ksh 300(13.3%)	1month
KCB mobile banking	Ksh 11,000	Ksh 450(4%)	1 month

Do your math before taking a loan.Prioritize your debts based on the interest rate of the loan. Repay credit cards with the highest interest first to keep your overall debt low.

Know more about the loan product you are interested in.

Some of the most common terms you may have heard in a loan conversation or Ad are;

Unsecured loans-An unsecured loan is a loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral.

Secured loans-A secured loan is a loan that has an asset as collateral for the loan. In the event of missing a payment or defaulting on the loan, the bank or lender can then collect the collateral.

Unsecured loans tend to have a higher interest rate because there is no collateral to cover the debt in case of default while secured loans have a lower interest rate.

Its in your best interest to avoid unsecured loans.

Track your debt

You may have taken a 3 yr loan which is definitely hard to track than the 1 month loan.Its important for you to maintain your own copy of records and analysis of how your debt is going.

Here’s a few pointers to use ;

1. The loan amount you took
2. the interest rate that was agreed in the contract
3. The number of years
4. How much you have repayed so far
5. The outstanding loan
6. Changes in the terms and conditions.

Live with a budget

A budget can help you watch expenses and divert more money to saving or paying off bills.

Its the easiest way to stay out of debt in the first place.

Learn more on how to budget on my previous post A 5-step budgeting plan

Remember any lender will require you to prove your ability to repay whichever type of loan you require – it’s in your interests too!