Best Financial Management tips: Effects of bad debts and getting out of debts

Financial Management tips
Financial Management tips

A lot of us are being buried in debt like car loans, personal loans, mortgages, student loans, credit cards, loans from family and friends, IOUs, etc.

We acquire these loans with valid economic reasons with hope of making our life comfortable either presently or in future.

However, it always ends up in a mirage and we end up not satisfying the need in which we took the loan for because we use the loan for different things and we end up repeating the cycle.


We are in an era where people are just piling up debt to satisfy their insatiable demand for flashy and expensive things just to show off or perhaps just to feel good that we have achieved something.

Most of these things acquired end up to be a drain on our life financially, psychologically and physically.

It is also worthy to note that not all debts are bad and not all debts put our life in misery.

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Bad debt is debt that help you to acquire an asset to generate an income to pay for the debt or a debt that help us to acquire knowledge to add value to our worth in order to earn more or increase our earnings potential.


Bad debt on the other hand is a debt that does not add to our net worth but rather deduct from us either directly or indirectly. Examples include auto loans, loans for household appliances, consumption loans, debt for marriages, funerals, etc. these debts are always a drain on our finances and our health.

Moreover, a debt should be seen as means to an end but not an end to the means, by doing that you will able to use good debt to create much needed wealth instead of creating debt for consumables.

If you happen to be in debt that’s being in a financial pit then the best advice is to stop digging in order not to sink further.

Getting out of debt especially bad debt is a long and system process and it requires great effort, planning, discipline and commitment. It is not a nine day wonder and a quick fix event.

Therefore, proper debt management requires emotional and spiritual strength to be able to ride over the hurdles of bad debt.

The focus of this article is on the bad debt which does not add value to your net worth but rather a drain on you.


Being in debt especially a bad debt that does not create income can affect your mental health and your total well-being because improper debt management has sent a lot of people to their early grave.

The stress of debt repayment and the worries associated with it can affect you emotionally, psychologically and physically and it can also affect you social life.

These stress and worries may impair your financial confidence and can affect your budgeting and for that matter you may not be able to maximize your savings and investments and may result in further indebtedness.

Getting yourself out of debt or reducing your debt burden significantly can be a good morale booster and it affects your mental and physical health positively.

Freeing up a substantial portion of your income from debt repayment can build your financial confidence and help you to create better opportunities for savings and investment in future.

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Accepting the fact that you are in debt helps you to manage your debt properly. Debt is not a crime and almost all of us have one form of debt or the other, so you are not the only person that might be in debt. Being in self-denial may complicate things in the long run and can be suicidal in personal debt management.


Always try as much as possible to stick to the agreed repayment plan of your debt to avoid penalties. If it becomes apparent that you might not be able to honour your repayment commitment due to circumstances beyond your control, negotiate with your creditors including family and friends before the due date to vary the terms of repayment. This will give you a breathing space to honour your debt obligation on time subsequently.

Also, it is advisable to curtail or reduce financial commitments to friends, extended family members and o ther identifiable/non-identifiable affiliates during this critical period.



living beyond our means is one of the surest ways to get into debt. If your debt burden is high then the best thing to do is to reduce your expenditure significantly. You need to spend your money on needed items that’s necessities. Identify and list the items and activities that you mostly spend your money on so that you will be able to separate the necessities from the luxurious and needless ones.

Avoid impulse buying, borrowing to attend weddings and funerals or other social activities which are avoidable. Send your wards to a school you can afford not where colleagues’ kids are attending. Get a decent and affordable rent or an affordable vehicle with lower consumption not what colleagues are having. “Look before you leap” and also try as much as possible to delay gratifications.

Also, you can avoid or reduce outings, parties, acquisition of new gadgets, appliances and expensive clothing for every event and functions, etc.


Budgeting is very essential for every individual. It helps you to identify and manage your income and expenses the best way. Monthly budgets will help you to plan your expenditure in relation to your income very well.

Always make sure that your expenditure for the month does not exceed your income. When you do that continuously and consistently you will see that your debt burden will be reduced or stabilized over time.


Writing down your daily expenses helps you to monitor your expenses very well and it helps you to know where every pesewa of your income goes. When you realized that you are spending needlessly then you avoid those expenses as quickly as possible.


Increasing your earnings is one of the best ways to manage your debt appropriately. You can do so by monetizing your hobbies, passions, talents, etc. if you are a good cook you can start doing so by advertising yourself through your numerous friends on Facebook, you can start selling items online by using your Facebook time line or WhatAssap status as your shop. You can also start blogging if you are a good writer or use YouTube or any other social media platform to sell your skills. You can even use your car for uber, bolt or yango services, or be a taxi driver on weekends or holidays.


This is what we call borrowing your way out of debt or poverty. You can create a debt and use that debt to acquire an asset or establish a business and use the income generated to pay off the debt and further use the income to invest more. Also you can consolidate your debt in the various financial institutions to one debt by borrowing at lower interest rate to pay off the high interest debts.

One has to be careful in this regard because if you are not careful and do proper due diligence, and also discipline yourself and show much commitment you will end up spending the money once again on consumables and appliances for personal aggrandisement and end up in more debt.


Without discipline and commitment one cannot achieve a debt free life. It requires discipline and commitment to live within your means, get extra job, as well as forgoing certain pleasures. It also requires discipline and commitment as well to journalize your expenses daily.

It also requires discipline and commitment to pay off debts on time and determine not create more for certain expenditure unless it’s for a necessity or a dire situation or to us that debt to create an asset.

Start in a very small way to show commitment and discipline, and with emotional and spiritual strength you shall surely get there.


In conclusion, being in debt might not be a bad thing but rather having a bad debt is a rough deal and it may be like a cancerous cell in your finances.

It is therefore advisable to avoid being in bad debt to deliver yourself from the stress associated with it.

However, you are encouraged to have a good debt to create wealth, maximize your savings and investments, and add value to your net worth because it’s good to use other peoples’ money to create wealth.

Communist: Godfrey Kusi (Charted Accountant and Financial Analyst)


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