How I got out of debt!

I read a rather saddening story of a Makerere student who committed suicide apparently because of loans. It is unfortunate that someone has to lose their life because of debt.

The bible rightly says that the borrower is slave to the lender. Debt is a tool and when misused can be quite dangerous. At the beginning of 2018 I was enslaved by loans. I had a credit card loan, a salary loan from work, a commercial bank loan, and another loan from a SACCO. I also had a salary advance from work just to top it off. I got into debt for a variety of reasons but it largely comes down to bad decision making and living above my means.

Currently I am debt free and would like to share how I got out of this deep hole.

1. First I had to realize that I was in a hole and it is NOT a lot of fun being in a hole. This was the hardest part. I had to stop digging the hole immediately. I decided to stop borrowing any more money. I cancelled my credit card. I stopped getting more salary advances from work. I stopped getting more top-up loans from the banks.

2. Next I started to save some money. I re-activated an old savings account with Housing Finance Bank and started saving some small money. This small amount of money allowed me to handle small emergencies without resorting to borrowing. Eventually I managed to save one million shillings by scrapping around for any extra penny to save.

3. Once I saved the one million shillings I began to attack the loans. I listed all my debts from smallest to largest. I made minimum payments on all the debts except the smallest. I started by attacking the credit card loan first. It was the smallest and most expensive. I was paying over 30% in interest. I was very aggressive on this loan because it was quite expensive and in a few months I had cleared it.

4. Next I attacked the Sacco loan. I negotiated with the Sacco to offset most of my deposits with the loan. This drastically reduced the outstanding balance. I negotiated further to reduce the monthly payment. This freed up a lot of my cash which I then allocated to the next loan.

5. I then went after the salary loan from my work place. I utilized my bonus for the year to completely pay off this loan. This was rather painful but freedom from debt was a very strong incentive for me.

6. I allowed the salary advance from work to naturally lapse as it didn’t carry any interest and it was a short term six months facility.

7. Finally I tried to pay off the commercial bank loan. However these bank guys had hefty early repayment fines so it made no economic sense to repay early. So I allowed this one to lapse naturally. Immediately after making the last installment I closed this account and opened another account in another bank. This move saved me 840k in bank charges per year.

Currently I am debt free. I am cash flow positive. I have since built a reserve of liquid investments and assets. I feel free and enjoy my work better without the burden of loans hanging over my head.