You may not believe this if I told you, but a lot of people have made debt a part of their lifestyle.
Urgent 2K today, “I’m just calling to greet you” tomorrow (younger siblings, I see you ?).
But this is not ideal.
There’s a whole life out there that does not involve you avoiding phone calls from the people you owe, and having to block them from your WhatsApp status so they don’t see that you bought shawarma.
If that sounds like a dream come true to you, you should keep reading.
How to get out of debt
Here are seven things you should keep in mind if you’re trying to not just get out of debt, but STAY out of it.
Set aside a percentage of your monthly income to repay debts
You might want to be careful here. Don’t be tempted to allocate a huge chunk of your income to paying loans. If you do, you might not have enough for yourself as the month passes and you might resort to borrowing again.
The recommended percentage is 20%, and this leads to the next point.
Live below your means
Typically, your income allocation should follow the 50:30:20 rule where you spend 50% on needs, 30% on wants, and 20% on savings and investments – summing up to 100% right?
However, when you have debts to pay, you no longer get that 100% at your disposal, so you’d need to live within the 80% left (for example) after loan repayment. This would require a lot of discipline, and cutting down some of your usual expenses (mostly wants) – at least till you’re out of debt.
Use the debt snowball method to repay your existing debts
The debt snowball method of debt repayment is a strategy to help you pace your repayment by settling the smallest debts first and crossing them off your list (assuming you have more than one).
Using this method, you create a list of your debts, in descending order – so a 50,000 naira debt would come before a 70,000 naira one. Then, each month, you pay as much money as possible to the first debt and make minimal payments to the others, until the first (smallest) debt is completely paid off.
Then you do the same for the second, and the third, until you’re now fully debt-free.
Leverage unexpected Inflow
If you won a cash giveaway on social media, or your generous rich aunty sent you money during that period, you might want to act as though you didn’t receive it and use it towards paying off your debts.
After you’ve gotten yourself out of debt, you’d feel a relief – like a weight on your shoulders has been lifted. It’s important that you maintain that and stay out of debt for as long as you can. This also helps you build the habit. So that brings us to…
How do you stay out of debt?
It’s one thing to get out of it, but if you don’t take the necessary precautions, you may end up right back in it before you know it. So here are a few things to keep in mind if you’re planning toward a debt-free life in the long term.
Be strategic about paying off your debts
Remember to do your debt repayment gradually and with a plan. If you decide to irrationally use your entire salary to pay off a loan to “get it over with”, it may come back to haunt you because you won’t have any left to cater to your needs, and you’d end up going to borrow again.
That’s a vicious cycle you don’t want to get yourself into.
Have Emergency funds
This might just be the most important point in this article. Let’s face it: the only reason you took a loan from someone is that you had nothing of your own to fall back on.
That’s what emergency funds are meant for – rainy days. If you’re unsure how much should be in your emergency fund, find out here, and set up your emergency plan in less than 3 minutes.
Get an additional stream of income
Over-dependence on one stream of income can lead you to frustration, especially if it’s not stable. So, it’s a good idea to get another one – preferably a passive one. It gives you options and makes sure you’re not stranded if anything affects the first one.
All I’m saying is…
Debt is not what you want hanging over your head for a long time. Many times the reason people don’t pay off their debts is that it gets overwhelming when they see how much has accumulated over time, so they become complacent.
The earlier you strategise and get to pay them off, the lighter your life would become. The debt snowball method makes it easier for you to prioritize your debts, so you can pay them off slowly and painlessly.
Please let me know in the comments if you’ve ever tried the debt snowball method (even if you didn’t realize there was a name for it), and how you’ve been able to stay out of debt if you’ve hacked it. You may be inspiring someone in the comments.
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I really want to control my finances. I envisage that I have a great tendency of making money and mismanaging funds. Most times I run out of money before the month ends and I feel terrible about it.
Hi Sonia.
Thanks for your vulnerability.
We provide a lot of financial education guides on our blog that can help you better control your finances.
Take it step by step and you’ll do better in now time!
What about school fees, health , charity and insurance.
school fees, insurance, and health can be placed in that friend’s wedding column as talked about in the article, t its all about understanding the main idea, looking within yourself where does this item fall, it’s about been creative and manageable with your money, i.e how long money stays in our hand using it effectively.
thanks a lot,Ope.really helpful,sometimes we outline the fixed and forget the discretionary ,and wonder how alll the money disappeared .This is very insightful
I look forward to more articles from you guys, random articles on various life topics. I love the active voice you used in writing and that sacarsm part too?
Thank you! We look forward to having you back here too ?
This is really amazing and educating! Keep it up and thank you so much for THIS ARTICLE ?
Our pleasure ?
Hello Ope,
This piece is quite insightful and helpful. Thank you. I Read the part where you advised to not document budget on a book as one can lose the book. Can you recommend an app on playstore one can use?
Yes. I’m seconding this comment. I believe an accounting application can help. I actually document my expenses daily but combining them into a general heading is a big task.
Please help us, Ope.
Hi Glow, I can’t recommend any tool off the top of my head right now, but creating a simple Google sheet or excel file for your budgeting can work.
I have a challenge, am the one catering for the house so most times I run into debts because expenses are higher than income . please how do I work on this.
thanks
Okay, Ope, you got me on with this one! ?
I know I make a lot of money as a full-stack digital marketer, but after some time, I’m broke and I’m wondering how come? As you said, I’m wondering “where did all the money go to?”
Sha, this post is very helpful and I’ve just downloaded this app I want to make use of in listing out the entire process… but quick ??
Which app or tool would you recommend for proper budgeting and evaluation?
Regards,
Sam
Hey Sam, happy to hear you found this helpful! ?
For the tool to help with budgeting, I highly recommend that you get down to do the “dirty work” first by yourself. Create a sheet on Google Sheets or Excel to input and track your spending to give you a raw idea, and then you can use other tools for lighter budgeting work based on the idea you now have from your sheet.
Hi Glow
You can download money manager on playstore, that’s what I use. There are others there too
I spend close to 38,000 only
Hi Sam,
I found it fascinating when I had to keep track of my sister’s account, but tracking my own expenses or developing a personal budget appears to be an impossible feat.
I mean… I don’t have a stable source of income yet so it seems almost hard to do but then after going through your write up I wrote a few ways in which I get money and am hoping I’d be able to get an hang of it soon.
Thanks for the detailed explanation.
Ope rather not Sam, sorry.
Wow! This is great, learnt a lot
Thank you so much for sharing this, Ope.
I have a question though. How can I budget as a student?
Because it seems like I can’t apply the whole concept of budgeting in my life at the moment.
I mean, I am a student, I don’t have a fixed source of income; I receive allowance from my parent and sometimes from relatives. I also do not work and I have no investments.
Sometimes, I feel like financial plans and budgeting is just not for me, even though I’m quite interested in them.
Like when I even receive my allowance, the rate at which the money finishes fast, makes me ask myself, “How?” “Where did all the money go to?” and “What did I spend the money on?”
I want to know how to track my expenses, save effectively and if possible invest and then build a financial plan, even as a student but I don’t know how to go about it neither do I know what to do.
So, if there’s any advice you could give me, please do. I’m very ready to learn.
Also, thank you so much for your financial lessons. I am always happy when I see your blog updates in my email. Thank you!?
This is very insightful and educative. I will make a do with this tips immediately. Thanks immensely Ope.
This is helpful I learnt a lot as a young graduate budget helps in build Future occurrences coming in the future also helps to pridict a lot of plan that u ought to achieve
Thanks Ope for this rich enlightenment.
But I got to ask you a question.
What if you don’t get an income per say but, a kind of allowance that’s not stable that you’ll have to ask before its been given to you. How then do you plan a budget given such instance?
Thanks for this wonderful post of yours.It is more encouraging.
Dear Ope,
Thanks for this insightful write up. I am definitely practicing this starting now. This is just what I needed to hear at this time. Thanks again
Really amazing thanks alot for this
I need withdraw
Thank for this wonderful post of yours. It is more encourage
I need withdraw
This article came in on time. Am guilty of many of the bad money management stated in the article. Not withstanding, it is not too late to start. I will be better equipped for the remaining part of the year and next year as well. Thanks Ope
Alisabiu744@gmail.com
This article came in on time. Am guilty of many of the bad money management stated in the article. Not withstanding, it is not too late to start. I will be better equipped for the remaining part of the year and next year as well. Thanks Ope
Ope thanks for this powerful awareness, pls if the is an app I can use for something like this let me know. I should start taking records this month
Mohammed
How can I do this
Thanks very much Ope. I always enjoy your post they are enlightening.Talking about budgeting how can one who’s money doesn’t come in bulk monthly go about making and achieving his or her budget.
I can control my financial status on my own. Because I really feel to be financially independent, on the basis of personal interest, and growth. Thank you so much.
Hi Ope,
Thanks for the blog,
I am currently working and I don’t earn enough. Also, I have to settle bills at home and help the family.
I find it hard to save, any advice on this?
Thanks for this piece, I really needed it to start my next month.✨
Thank you so much Ope. We shall do this
Cowrywise has really helped me to everyone more and spend less
I wish it will not crash
Thanks so much. This is an eye opener. I always wondered why I’m left with nothing at the end of the week/month/year after making so much money. Please, do cowrywise have a budgeting app that could be helpful.? It’s important