By Babajide Komolafe

“I am a civil servant on Grade Level 12 salary but I use 70% of my earnings to service debts from bank loans. How can I get out?”

In the last two editions, I explained why most Nigerians, like this reader, fall into the trap of debt. But how does one get out, or how do you free yourself of such a debt burden?
First, and where possible, engage the financial institutions to negotiate favourable repayment terms vis-a-vis your limited income.
Another option is to seek a fresh, no-¹interest loan with favourable repayment terms. Sources of such loans include relatives, friends or employers.
Engage the prospective lender, explain your plight, and offer a convincing repayment plan, which should limit loan repayment to 30 per cent of your monthly salary. You can back up the repayment plan with a post dated cheque.
However, the prospect of securing such a loan depends on your reputation for honesty and integrity over the years.
In addition to seeking fresh loan with generous repayment terms, another option, in fact a must, is to adopt some belt tightening measures to drastically reduce your monthly expenses by at least 30 per cent.
Yes, this is possible. All you need to do is focus on the most basic needs, like food and suspend expenses on non-necessities and non-essential needs, including dry cleaning, subscriptions for cable TV, spending on airtime and data.
Notwithstanding the above, I need to state that borrowing is not the problem but the source and terms of the loan as well as the purpose of the loan.
The uncertainties of life can create situations that can compel you to borrow. In such situations, you must borrow in such a way that you do not become entrapped. How?
Seek a loan with a fairly long repayment term like six months upward. One month, three months is too short for loan repayment. Also, anything can happen that can result in unplanned spending. Hence, taking a loan with the belief that you will repay under one or three months leaves little or no room for you to manoeuvre in case of emergency.
Seek a loan that comes with a low interest rate, and this must not be compounded. In otherwords, delay or failure to repay the loan does not increase the amount you will repay, which is what happens with most loan offers. You take a loan of N100,000, with a monthly interest rate of 10%. If you don’t repay principal and interest at the end of the month, the loan becomes N110,000 ( N100,000 principal plus N10,000 interest). And if you don’t repay by the end of the second month, your debt increases to N121,000 (N110,000 new principal plus N11,000 new interest rate).