Moving from debt to wealth

FOR PEOPLE trying to survive the economic crisis that is still choking Jamaica, meeting financial obligations like making loan payments consistently can be extremely difficult.

Rising inflation has, no doubt, been eating into that monthly budget, and it seems even the best-laid plans have failed. But although you have dwindling resources to cover your day-to-day expenses, you still have to pay what you owe.

Today’s money question is from a reader who is struggling to keep her loan commitments. She wrote: “I’m a young woman who literally lives hand to mouth on credit cards. Much of my salary, roughly $60,000-$70,000, goes to bills and paying off a loan to a family member. Should I try to get a small credit union loan to cover that debt or continue living hand to mouth on credit cards? ”

debt cycle

Sydney McLennon, assistant vice-president for private clients and portfolio management at Capital & Credit Securities Limited (CCSL), says living hand to mouth on credit cards is not the way to go.

“This sounds like a scenario that many people can relate to. It’s your typical debt cycle that’s based on consumerism and we need to get out of it,” says McLennon, in urging the reader and others in this position to take a holistic approach to financial recovery. “The reader asked if she should try to get a loan to cover the debt and she’s definitely on the right track,” he asserts.

McLennon believes that debt consolidation is a good place to start. “In simple terms, if you have three creditors, A, B and C; you try to get another party to take over all those loans so you are able to pay off A, B and C and end up with one loan to service. Based on the terms and the amount, what that could do is give you one lower payment, which means more cash flow. And cash flow is key,” he explains.

But according to the CCSL executive, debt consolidation would only be the first step on the road to financial recovery. “Now that you have got a more manageable loan situation and a little more cash flow, it is not the time to go spending because you are still in the recovery cycle. This is where you need to re-examine your expenditure. Ask yourself, ‘How did I get myself in this position?’ It’s important to manage your expenses, starting with the little things – the number of cellphones you have, the amount of call credit you buy, the number of social events you attend,” he suggests. McLennon adds that setting a specific time frame for the recovery period is also essential.

creating a surplus

The next step in McLennon’s recovery plan is building a reserve. “Ideally you should save at least 10 per cent of your gross income. Once you have achieved that, you can begin to work towards building a financial base of six times your gross income. You may then use some of this reserve to clear off your debts, and this will take you into a surplus position,” he notes.

McLennon points to the next phase, which is wealth creation.

“This is the area where we at Capital & Credit have a lot of experience. We help people move from no money to some money to more money. There is no magic wand and it doesn’t happen overnight,” he explains. “It takes a lot of drive, sacrifice and discipline. When you come into Capital & Credit we start by having a conversation with you to find out what makes you tick and what you want to achieve.” he added.

He further noted: “We look at you to develop a financial plan using our Life Goals product. Through our various instruments, we help you accumulate wealth, achieve life goals and plan for retirement. All this put together creates a financial solution.”

By Stacy-Ann Smith