THERE ARE VARIOUS WAYS in which our livelihood may be marred by debt. Maybe a major investment goes sour, a business undertaking fails miserably leaving drowning liabilities for the proprietor and his family, a gambling addiction overtakes the investor, an extended period of unemployment, or say, a prolonged yet debilitating illness strikes. Debt may also arise from indisciplined spending.
Just like any other adversity, insurmountable debt can happen to anyone. It seems only fair to provide some guidelines for dealing with such debt:
1. Regular medical checks are desirable for you and all your dependents. This will not eliminate the disposition to a serious illness but at the least, it can increase the chances of early diagnosis and of planning financially for the treatment.
However, being medically fit is not just the absence of illness. It is important to maintain an all-round healthy lifestyle, including driving defensively. A paraplegic resulting from a vehicular accident can be a recipe for subsequently accumulating a lifetime of debt.
It is accepted that mental and emotional well-being are useful in maintaining a balanced life. Yet, for people who become aware of their own financially destructive habits or addiction, there is usually high resistance to help from others. Counselling is an important step in getting back on track before a problem becomes a disaster. The well-being of dependents, particularly children and young adults, should not be overlooked.
2. The benefits of a carefully considered insurance strategy cannot be underestimated. Everyone should consider general insurance, health insurance, loss of income insurance and, for a business, business interruption insurance and/or professional liability insurance. All types of insurance may not be needed or even be reasonable. However, the explicit consideration of each type of insurance contributes to the understanding of the related risk exposures. In addition, insurance coverage should be regularly reviewed for adequacy with changed circumstances.
3. Enough cannot ever be said for building a better understanding of personal financial matters. A wide understanding of the prevailing tax laws is fundamental to financial literacy. It is especially important to consider the tax implications of holding debt.
A financial adviser can be useful support, but ultimately, the choices about your finances should remain personal. There is a whole body of knowledge and experiences available on the Internet and in books, articles, seminars and workshops.
4. Some people manage their finances apparently well during their working years, then during their retirement are forced to pass around a hat to collect from friends and family, and sometimes even the general public. An insurmountable debt situation can also wipe out assets that could have been set aside in a pension fund. A specific pension plan, developed early in one’s working career, is therefore advisable no matter what are your circumstances in life at the time.
5. In spite of all precautions, there will still be times that even with the best application of debt-fighting measures, the adversity of debt will descend with full force. How can you deal with the resulting trauma?
My best advice is to be honest with all creditors. Work with them to generate a long-term solution. Declaring bankruptcy is a possible last resort.
Be honest and open with your relatives too. Choose carefully whom you will share your troubles with. Nothing worse can happen as a result of facing the situation fully. As long as there is life, even the worse of situations may be redeemed.
Being saddled with debt generates feelings of embarrassment and the desire to sneak away from decent society. However, it is a critical time when one should seek all the support and understanding possible rather that suffer the pain and disappointment alone and depressed. Persistent fightback is crucial to finding a way out of dire circumstances.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
