Growth & Jobs | Consolidate high-yield loans to reduce debt in 2022 | Messages
Many Jamaicans have entered 2022 with high levels of personal debt, with much of their burden compounded by the last 22 months of the pandemic.
According to the Bank of Jamaica in its 2020 Financial Stability Report, household debt rose 3.4 percent in 2020 alone, while the ratio of household debt to disposable income also rose to 71.5 percent, from 61.3 percent in 2019. It is not clear whether the ratio has deteriorated in 2021.
The deterioration in household debt-to-income ratios came as 57 percent of Jamaican households experienced a drop in income, according to the Caribbean Policy Research Institute in its 2021 study, Locked Down, Locked Out: Vulnerable Communities in the Pandemic “.
Of course, the pain of the pandemic has been felt most severely by the poorest households, according to the institute, which found less than four percent were resorting to borrowing from a friend, family member or a neighbor to supplement their income. Of these
When asked by the researchers, 12 percent said they took out loans just to “survive.”
However, a new year brings new opportunities, and with the right strategies, Jamaicans can get their debts under control.
For consumer credit, pros recommend consolidation, especially for high-yield bonds.
“Consolidating high-yield debt with a cheaper interest rate option is a good strategy,” said Carlene Stair, head of credit at JN Bank.
“Reduce unnecessary borrowing and don’t borrow high-interest for consumer goods like groceries and other items that aren’t valued or will disappear in a short time,” she advised consumers looking for debt-reduction opportunities in 2022.
“Make sure you pay your debts on time and when they are due and pay the required amounts, or at least the minimum required, on things like your credit cards.”
Howard Lawrence, head of credit management at JN Bank, similarly urged those who have credit cards to make sure they manage their spending carefully when he pointed out that while credit cards are great tools for managing one’s spending , people can seriously incur debt if not used wisely.
“Limit spending on these facilities to an amount that can be paid off monthly from your regular income,” he advised. “This prevents high interest charges from accumulating. The best practice is to use credit cards to cover recurring monthly expenses, e.g. B. for buying your gas and spending at the supermarket, and to avoid excessive or impulsive spending.”
He also recommended consolidating debt whenever possible, noting that there are two ways to consolidate debt — by using an equity loan or by accessing an unsecured loan.
“Debt consolidation loans can be equity loans backed by real estate that allow for lower interest rates and longer maturities. Where an equity loan is not an option, consumers can access unsecured debt consolidation loans,” he said.
However, not all debt is irrecoverable, the two reminded consumers, noting that in many cases debt is necessary to access capital and improve quality of life, for example to take out a mortgage to buy a house. but managing debt carefully also affects quality of life.
“Debt isn’t necessarily a bad thing, as borrowing can add to your wealth and increase your net worth. It can also increase your cash flow, which allows businesses to grow,” Stair said.
“However, you have to be careful how much they borrow and for what purpose. We cannot borrow out of debt.”