In the recent weeks we have discussed savings and investment but a significant portion of Rwandans are in debt cannot think long-term.
Debt is the reason the world experienced the global slowdown, too many people borrowed too much on inflated assets. The coming year should see a correction in the housing market. There has been a freeze in sales as speculators held on to over-inflated properties in the hope that liquidity would return to previous levels.
Next year should be a good year for first-time home buyers, as house prices will reduce to more affordable levels. Provided families can help their young buyers with capital to reduce the burden of overall debt.
If debt is managed properly it can help millions achieve wealth but instead millions are caught in the vicious spiral of having to borrow more money to pay debts.
From a personal perspective, one should know their spending habits and control them because they are the main determining factor in debt levels. One should be risk-averse and avoid debt whenever possible because debt is about leverage or control.
Leverage is the ratio of debts compared to the assets and earnings you have. If the leverage level is affordable then debt can be helpful, but too many bite off more than they can chew.
From an institutional perspective, we need better risk assessment from banks. We cannot have blanket rates as a way of assessing overall risk, we need affordable rates; an 18% rate is fatal for businesses with variable costs.
Due to the failure of our banking system, adhoc money lenders have filled the void. Any shop in my neighbourhood can lend up to Rwf100,000 until the end of the month at a lower rate than the banks because they personally know their clients.
Some of these adhoc lenders are unscrupulous and charge extortionately and can confiscate property if debts are not paid. We need to make credit available to the lowest levels of our economy otherwise loan sharks will, and they can paralyse the economy.
In dealing with debt one can take a similar approach to savings and risk.
Do not invest all your debt in one project or revenue stream, diversify your debt from different sources and invest it in different streams.
Make a complete profile of all your debt, how much, who you owe, when payment is due and work out a schedule.
Reducing your expenditure is essential both in saving and debt management, even the minutest reduction can save you in the long run.
For example Rwf5,000 a week reduced in spending over a year is Rwf260,000 a year, and Rwf200 saved a week can pay a month of cashpower or Rwf10,000.
Always take debt in the currency you earn otherwise you will be subject to fluctuations in exchange rates.
Always remember the ratio of debts to assets, never take more debt than you can afford. If you have taken such debt, then work to reduce the ratio bit by bit.
Always keep up payments and work with your debtors to work a schedule. Do not run from debts or ignore them, they only get bigger.
The final thing is to pray for the best.