If you have been seduced into carrying high levels of debt either due to need or greed, it is never too late to execute a U-turn. While, in many circumstances, borrowed money can be used as capital to start some new, profitable project which will make the interest charged worthwhile — if, instead, your debt burden was created to support a conspicuous lifestyle, or consume goods which have no lasting worth, you are digging for yourself a grave called poverty.

Car loans, student loans, payday loans, mortgages, and credit cards, home improvement loans — many such products are advertised by local financial institutions as a way for Jamaicans to quickly secure goods, property and services. However, if payments for such loans are beginning to exceed your earnings, or they make you feel burdened, it’s time for change.

There are several strategies which are recommended for debt reduction. First is to sit and make a record of what you actually owe, the repayment period and the interest rate applied to each loan. List them with the highest interest rates at the top. The next steps will involve ways to erase them, one by one.

It is recommended that you should pay off the loan with the highest interest rate first. These are usually credit cards, or microfinance loans, which can attract interest rates of between 35 and 60 per cent. If you maintain high balances on these loan types, you might be literally doubling the loan amount every year.

For student loans, it is recommended that you begin to pay more than the required monthly payment in order to close the loan early and also save on interest. Some experts recommend the snowball method as another way to chip away at your debts. Instead of the biggest interest rate, you focus on your smallest debt. With this method, you make only the minimum payments on your other debts. Pay any extra funds you have on your smallest debt and get rid of it as fast as you can.

You will continue this method until all your debts are cleared, one by one. When you reach the last one, begin to make large payments to get it out of the way.

You can also reduce debt by asking the lender for a better interest rate. Let them know that you are thinking about switching to another lender with a better rate and ask them to match it. They just might agree and do so.

Should you refinance?

The idea of refinancing by finding one lender who will pay off all your debts and allow you to pay them is not a bad one, but if the interest rate is higher, or if you will end up paying more over time, you may want to reconsider.

And, if you do consolidate, this does not mean that you can start spending again. As you begin to free up income by paying off debt, it’s time to think about saving and investing to secure the property and goods you want, instead of always borrowing. If you realise you are no good at managing credit cards, it’s time to cut them up. The way to use credit cards is to pay what is owed before interest is applied. If you carry balances, these will attract interest, rising higher as your spending rises.

Budgeting is a good habit which will help you to keep track of spending, debt repayment and even make plans for savings and investments for short and long-term needs. If you must take out items on a payment plan, or hire purchase, choose the best and shortest one possible. Don’t be tempted by three-year and ten-year loans, as at the end of that period you will have paid multiple times the original price.

When you get bonus payments or payments for extra work, it can be used to pay down debt instead of buying new shirts and shoes. Treats, however, are allowed for good behaviour, ie, you can celebrate when your debts are paid off.

If you are also in the habit of making only minimum payments on your credit card, (separate from a plan to pay off other loans) this habit also needs to change, as it will only take longer to get rid of that debt.

When you are free of debt, go and sin no more. Your new life should be focused on saving towards your needs, instead of enslaving yourself in another debt trap because you cannot wait to get what you want. Do you have spending habits that include credit cards, payday loans, and microlenders? If you do these are habits you need to stop… forever.