Becki Patterson, Business WriterHaving debt is not a bad thing - unless you are unable to service it or it is being taken on for an entirely frivolous purpose. In other words, if you are going to borrow, be clear about why you really want the money.
That, essentially, was the message from managers at First Global Bank at their recent series on seminars on personal finance issues.
"A loan can be very beneficial and productive but should not be taken if there is inadequate salary to repay the debt within a specific and agreed period," said First Global's consumer credit manager Gifton Simms.
Neither, he advised, should debt be taken on for purposes that would not add value to life or enhance your net worth. And never, he warned, should you borrow "to wager".
Potential borrowers, too, should be circumspect if their job situation is tenuous.
Borrower's responsibility
Having decided to borrow, there are a number of things that the borrower should take into account other than the specific requirements of the lender.
"It is advisable that apart from satisfying the lender's total debt-service ratio, that you ensure that there is a residual income of 10-15 per cent to take care of any unplanned expenses," Simms said.
Borrowing is not just going to the bank, asking for the loan and walking out with the cheque or cash. It is a legal transaction that requires paperwork, taking into account issues such as the repayment period, rate of interest, whether the loan is secured or unsecured, or if the borrower is employed to the firm or is self-employed.
Most loan institutions have representatives who will guide the individual through to satisfying proof of loan eligibility.
Once that is done, according to Simms, managing you debt begins. He had a number of suggestions on the things a borrower should do in this regard:
High interest debt should be paid off as quickly as possible. Establish the monthly due date for the loan and make payments on or before that date to prevent the payment of late or overlimit fees. Shop around for cheaper debt and consolidate loans on terms that make repayment affordable. In the event you have an asset that can be sold, SELL IT and use the proceeds to liquidate your high-interest debts. Seek to negotiate a lower interest rate whenever possible prior to agreeing to the loan terms. Amalgamating into one or more consolidating loans, be they personal, commercial or corporate, is a good means of establishing and agreeing to a repayment that fits into your monthly income or cash flow.If you have decided to consolidate loans, there are number of things you should be aware of and take into a account in determining whether the arrangement is workable and beneficial. These include:
The new vs current interest rates Loan and documentation fees New vs existing loan terms Actual income in support of the consolidating loan terms.The borrower should ensure that upon consolidation, the repayment terms have clearly allowed for a reduction in the repayment amounts.
You should look, Simms said, for terms in the agreement that may cause the yearly repayment to creep back up during the life of the loan. As much as income allows, pay down or pay off the debt before the full term.
In instances where there is just enough income or where there is a spike in monthly income, pay down the most expensive debt first, until it is settled, while continuing to repay the cheaper debt.
business @gleanerjm.com
