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Dealing with the bondage of Debt and Surety – Part 2 | Max Manimbi Jr

In Part One of his article, ‘Dealing with the bondage of debt and surety,’ Max Manimbi Jr explained what debt is and what you shouldn’t do when trying to reduce your debt problem. In Part Two, he outlines a debt reduction plan that you can use.

Domino your debts: Have A “Debt Reduction Plan”.

I will write a more detailed article on debt reduction however as a prelude everyone must a clear debt reduction plan. In fact, never borrow in the first place without a plan to repay.

Step 1 – Line up all your debts from the smallest to highest.

(Do not include in this list Car, House or other secure loans obtained from Banks and Reputable financial institutions. Those repayments are usually automatic already based on a standing order against your account). List in this format;

Step 2 – Start the elimination process

Allocate a fixed amount from your fortnight that will be solely for paying off debts. For illustration purposes you might allocate K100 every fortnight. Begin by paying off your smallest debt first. This could be the K50 borrowed from the Market Mama from the buai market close to your office and another K50 to your work colleague that sells lunch packs in the office.

Keep in mind that along with paying off your smallest obligation, it’s important to also make the monthly payment on your house or car loans simultaneously.

Step 3 – Press Repeat.

Repeat the process until you’ve eliminated all your debt. The best-case scenario is that you’ve eliminated all other loans and you are now left with only your House or Car loans. This are on average the largest debts incurred by PNG families. Once you have paid off your smallest obligations, you can consolidate the extra money you have now to throw at your larger loans.

This process may last a year or three years. So long as you don’t borrow from Peter to Pay John and remain steadfast – freedom awaits you! The secret is to be content and live within your means.

What about Surety?

Surety is security against loss, damage or agreeing to be legally responsible for the debt, default or conduct of someone else. The Biblical definition of “Surety” is making a debt or commitment without having a sure way to repay the debt whether for yourself or someone else. It is basically the basic principle by which Ponzi schemes operate. Every time you make a commitment without having the means to fund currently, you are in effect running a Ponzi scheme on yourself.

A good example of surety is when you purchase a new car and the debt for which you obligated yourself is more than the market value of your car. Say you decided to buy a new Toyota Land Cruiser from Ela Motors for K100,000.00 for personal use. You obtained a loan for K100,000.00 with an annual interest rate of 15% from BSP for the purchase. You are in fact paying each fortnight 15% more than the value of the car. If the bank reposes that car you would be in a position of surety because the value of the car would not be enough to cover the debt. You don’t want to be here.

To avoid being in a position of surety take a step back before committing yourself financially to any obligation. To avoid being in a position of surety do the following;

Name of debtTotal AmountInterest DateMonthly Minimum
    
    
    
  1. Never take unsecured loans that require no collateral.
  2. Always make a sufficient down payment on any car or home loans. For example, if you are buying a car worth K100,000.00. Pay K20,000 upfront than take out a loan for K80,000.00 to cover the rest. In doing so you ensure the asset value Car is worth [K100,000.00] is worth more than the debt of [K80,000.00]. The car can be sold to meet your loan requirements in the event you can’t keep up with your monthly payments.

In conclusion, debt is a problem we can solve.

To solve we must under understand debt itself, the danger of being caught in the spirit of debt and being in a position of Surety. A clear debt reduction plan coupled with persistence and commitment can see anyone break free from bondage of debt into freedom.

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Max Manimbi, Jr is an accountant with a ‘Big Four’ accounting firm. His passion is in helping people get better with their finances. You can follow him on Facebook: https://www.facebook.com/Maxie360 and on LinkedIn linkedin.com/in/max-manimbi-jr-3b1ab76a

3 comments on “Dealing with the bondage of Debt and Surety – Part 2 | Max Manimbi Jr

  1. Anthony Neck

    Very good advice ! Don’t get yourself loaded with debt you can’t afford.
    And don’t forget a vehicle is a depreciating asset so as soon as you take it out of the showroom you lose value. A vehicle is for travelling from A to B with a reliable and comfortable vehicle. Don’t buy a vehicle you don’t really need just because you can afford it. On the other hand investing in Land/property and shares are appreciating assets. Also consider a salary sacrifice and put more money into superannuation. If you have a loan on a property you have purchased consider increasing repayments so it’s paid of early. If you understand the concept compounding interest then you will understand what I’m talking about. This is general advice only and it all depends on your individual circumstances.

    Liked by 1 person

  2. william kupe

    Thank you very good information as many of us this days don’t really understand debts and how to manage it.

    Like

  3. Insightful.
    Thanks for posting

    Like

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