Power of debt:Ten ways to stay away from bad debts





When the word debt is mentioned, majority of us only think of bad debt. Debt can be either bad or good. What is a good or bad debt? Bad debt takes money from your pocket while good debt puts money in your pocket or a debt that someone pays for you. For instance, a loan on a rental property in which tenants are the ones responsible for covering your expenses and mortgages.  Some examples of bad debts on the other hand are  car loan and mortgage payment for your home .  Debt has the power to make you financially free or poor depending on your reactions towards it.
What principles one can follow to shift bad to good debts and to investment. In Life, discipline play a key role in everything we do. If you are not disciplined then your life will be lying in the edge of a sharp sword. To be financially free, you need to practice some disciplines to get out of the rat race. Young generations today will heavily invest in bad debt like buying expensive cars, taking loan to build a home. I’m not saying investing in all these things is bad but we should buy them when we have created enough cash flow from our investments. These are some of the most lucrative ideas one should consider investing in: Business, real estate, paper assets and commodities. 


How to get out of bad debt
You will need three ingredients here to say goodbye to bad debt;
(i)                 Your financial statement- this helps you to know where you are financially at the moment and be true to yourself about this.
(ii)               Personal discipline- this will make you to be disciplined towards enhancing your financial freedom.
(iii)             A game plan- this will take you where you want to go.
Debt reduction
Debt reduction is a must for one to get out of this loop. Debt reduction entails;
(i)                 Pay yourself first. Let this not be the money you are setting aside for your monthly expenses but it should be exclusive of your expenses. Quickly put this money in investment account like insurance saving policies or bank saving accounts.
(ii)               Cut back on unnecessary things. This can be done by adopting old-fashioned of delayed gratification.
Ten (10) ways to get out of bad debt
One should always aim at investing using debt. The following ten ways will teach you how to get out of bad debt and turn it in investment towards the road to your financial freedom.
(i)                 Be true to yourself: know where you are and where you are aspiring to go.
(ii)               Stop compounding bad debt. Leave out unnecessary things in your budget.
(iii)             Make a list of all bad debts you have in your life. This list will help you plan properly.
(iv)             Hire qualified person with book-keeping knowledge. This will keep you on tracking and ensure you are disciplined towards settling out your bad debts. Here pay yourself first and determine which money is going to which account.
(v)                Picture out each debt-this will enable you to know which debt you will settle out first.
(vi)             Identify the sequence in which you are going to settle the bad debt. This is very important and it will ensure at every month some money are going to specific accounts.
(vii)           Find something which can generate for you some extra income (Ksh 10,000 to 20,000) per month. You just have to be creative. You can write an e-book, doing online writing or anything. This extra income channels it towards paying your first debt.
(viii)         Exclusive of your first debt, pay the minimum monthly payment for each of the remaining debts.
(ix)             After completing paying your debt number one move to debt number two, and continue with some process until you clear all your debts.
(x)               Now, the monthly payment for your last debt, invest it. You can buy a land and build rental houses or invest it in dairy farming or anything dear to heart which can generate a good income for you.


Example
A certain man has five (5) bad debts he wants to settle out. The amount of the debts are as follows; Debt #1: Ksh 200,000, Debt #2: Ksh 180,000, Debt #3: Ksh 100,000, Debt #4: Ksh 80,000 and Debt #5: 20,000. The man earns Ksh 70,000 per month. After going through the above steps, he decides to take Ksh 10,000 each month for his monthly salary to settle these debts. He also starts poultry farming where he always gets profit of Ksh 12,000 per month. He decides to take Ksh 10,000 from this profit (poultry) and use it towards clearing his debts and saving Ksh 2000 per month.
The man chooses this sequence to pay out the debts: Debt #1=Ksh 6,000 plus (+) Ksh 10,000(part of his profit from poultry farming); Bebt#2: Ksh 1,000, Debt#3: Ksh 1,000, Debt #4: Ksh 1,000 and Debt #5: Ksh 1,000.
Following this scenario, this man will complete paying all of his debts at 29th month, and will remain with Ksh 17,000 at this time. On 30th month he can put 20,000 he usually uses in settling his debts plus(+) Ksh 17,000 which equals to Ksh 37,000 in saving account and continue with the same cycle and until he gets a enough cash for investment(depending with the project he wants to venture in).
If one follows these principles, he or she will be out of bad debts and will be in a journey towards her or his financial freedom. 

NB:For inspiring entrepreneurs, I recommend this book,"(Disciplined Entrepreneurship: 24 steps for successful start-up)" , check it here Successful Entrepreneurs   and for digital marketers this Get your content to go viral will work for you perfectly.

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