A few weeks ago the Government of Jamaica initiated the Jamaica Debt Exchange (JDX) transaction, this was done as the debt structure and fiscal position of the country was not sustainable. In plain old English, the government was spending more than it was earning and had been borrowing from Peter to pay Paul at high interest rates to balance the books each month and it wasn’t possible to ensure longevity with this approach. When put in this light many of you may see yourselves as a small shadow of the GOJ. Many people’s debt structure and fiscal position especially in the current economic climate is not sustainable. The government has boasted success of the JDX, maybe you too should follow suit and initiate My Debt Exchange (MDX).

The JDX wasn’t a standa-lone approach in an attempt to create financial stability and growth for the country. It was apart of a complete approach which included disposal of unprofitable assets, reduction in expenses and increase in revenue. This concept is by no means new but sometimes we need to get back to the basics and build a new foundation upon which to build. So if you are already living on a tight budget but are still not debt free, then its time to implement MDX.

The essence of MDX is not to eliminate debt overnight but to help you identify a clear path to becoming and staying debt free. It includes reducing monthly payments to loans by extending payment periods and reducing interest rates. The first point of rescue for most is their credit card, you swipe and go until the bill arrives and with interest rates of up to 50 per cent per annum you can barely make the minimum payments and every month you go deeper and deeper in the red. Debt consolidation is a very good way to ensure a successful MDX, there is no one way to consolidate your debt but here are a few tips:

1. Currently Home Equity Loans rates are approximately 14.49-21.50 per cent with up to ten years to repay, obtaining a first or second mortgage is a great way to secure a loan at a lower interest rate. Though some rates are determined by purpose of loan, it will cover most if not all common types of debt.

2. Unsecured Loans which normally carry higher interest rates ranging from about 26-33 per cent have stricter qualifying requirements but are still a good way to consolidate when collateral is not available.

3. A Line of Credit, while very similar to an unsecured loan, can also be secured by assets such as cash, real estate and the cash surrender value on a life insurance policy. The funds are not disbursed in lump sum and you decide how and when the money is used. Many have flexible payment plans which also include interest only payments. Interest rates range from 19.875-27.875 per cent.

4. Secured Loans may seem beyond your reach but there are a range of assets which can be used as collateral such as real estate including land, motor vehicle, Bonds, Stocks and the cash surrender value on your Life Insurance Policy. Some institutions require that liquid assets be held with them and some will accept hypothecation of funds. Secured loans normally offer the lowest interest rates ranging from 16-25.75 per cent with the rate being determined by the asset which is used as security. It is a great way to clear debt without breaking your investments and savings.

5. Last but by no means least, are personal loans from friends and family which may be the lowest in terms of interest rates and if you are lucky, may even be interest free. If this option is chosen make sure the terms and conditions are agreed upon beforehand and are realistic and follow the guidelines of commercial loan facilities. In some cases, this may also include using their assets as collateral for your loan. However, be very cautious about taking advantage of this option if it is offered to you.

Whichever method you may choose be sure to do your due diligence and not choose a loan based only on a low interest rate. Consider other benefits such as interest only payments, moratoriums, penalties, tenure of the loan, no penalty for early repayment and lump sum payments. Check with the institution with which you hold your accounts, reduced rates and other benefits are sometimes given to long-standing customers. Always follow the cardinal rule “do not borrow more than you need just because you qualify”.

Reduce your worry and stress, gain control of your life and debts and I wish you a successful MDX.

Natalie Bennett is an Operations Officer with Sterling Asset Management Limited. Sterling provides medium to long term financial advice and instruments in U.S. and other world market currencies to the corporate, individual and institutional investor.

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