How to recover after a financial mess

1. First step: Accept it and adjust

Some people get into serious financial situations but continue to live in denial about it, and try to live their lives as if it is business as usual. Often, after a job loss, many people will refer to themselves as say, “a former head of department” – meaning they are drawing their current identity from their past situation, which is no longer accurate. Denial only makes the situation much worse. If you have lost your income and you live in an expensive house, move. Change the schools and cut out the entertainment costs. Immediately. Don’t wait until your resources are exhausted. It takes about three to six months to get a new job, but after that, it becomes more difficult.

2.    Explain the new status to those that matter

You need to communicate to your spouse and children and help them understand that the situation has changed. If they were doing take out dinners, they need to understand that that has changed. That usually comes with a lot of pressure, because if, for instance, you were sending money to your parents in the village, it may no longer be possible to send them the same amount.  Tell them to expect either reduced or no support from you because your situation has changed.

3.Do a wealth inventory

Get a plain sheet and make two columns. On the left one, list your assets and on the right column, list your liabilities. This is taking stock of what you have. You might have a lot of debt in form of mobile phone credit, mortgage, unsecured loans or sacco loans – you need to think about all of this. When you had the means, they were automatically being deducted, but now you need to know exactly what you owe, where everything is and how to go about paying it.  This is where you understand where you stand and what the most pressing liabilities are. If you were paying a mortgage for your house and only have a small debt remaining, you will access if it is possible to clear it. If you default, it could end up being auctioned. What affects most people is things that they had been paying for in installments, such as insurance, hire purchase and education policies. Talk to the parties and see if there is an option to opt out or defer payments until you have the means to pay. If you have to surrender, ask what the surrender value is.

4.Contact your creditors

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Most people in Kenya tend to hide from their debtors when they cannot pay and make false promises. They only react when they get listed at the Credit Reference Bureau, yet many creditors are open to debt restructuring. They may give you a moratorium (grace period) for a few months as you sort out your finances. If you really cannot pay, communicate. People fear auctioneers, yet sometimes that is better than keeping quiet and having your debt ballooning, so that by the time the asset is being sold, it is no longer an orderly sale.

5. Owe money and afraid of auctions?

This is the time to collaborate with the most motivated and willing buyer to take over your asset. When you hide for two years and the creditor takes your items by force, by that time the amount owed is too high and it is almost impossible for you to get a fair amount as auctions are normally done on reserve price (the lowest possible price). Other arrangements are possible. For instance, if you have a car or house and have been paying a certain amount per month, someone can come and take over that credit, you give them the car and you agree that the person refunds you some of the money. With banks, they do not mind having the same creditor or better, even if they will still keep you on the hook until that person finishes paying.

6. Create a financial survival strategy

If you had insurance policies that were meeting certain objectives, see if you can meet the same objectives under the changed circumstances. What is achievable in your current situation? The goals need to be modest now. Basic goals should be to pay bills like power, water, clothing, shelter and food. If you were the breadwinner, the other spouse can plan to get some form of employment or other means of income.

Health is a critical goal to have. The National Health Insurance Fund’s (NHIF) new cover is now highly protective of the principal (the payer) the spouse and children. Ensure that you have it.

7.Create a prioritisation plan

What are the things that must be paid for? How do you allocate the little that remains? Have an allocation plan that goes down to the basics? If you have to go to the mama mboga and pay some money to ensure you can pick necessities for a part of the foreseeable future, do that.

8.  Take action

This is usually the most difficult part for most people. This might mean cancelling chama memberships, club memberships, move to a cheaper neighbourhood, take the children to a different school and so forth.  It is difficult because this is what your social acceptance was based on. If for instance you are trying to cancel subscriptions, the sales people will try to convince you not to. You need to summon the strength and stamina to implement your plan ruthlessly. Some people also delay to take action because by that time the news has filtered out that your circumstances are not good.

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Financial messRecovering