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*TIPS: Managing Credit And Money In Zimbabwe*

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Over the past several years, Zimbabweans have borrowed heavily. For various reasons, some of which are beyond the scope of this article.

The borrowing can be at properly registered Microfinance institutions (MFIs), or it can be at loan sharks (Chimbadzo).

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Civil servants, for example, borrow from registered MFIs who then get their installments paid via the government’s Salary Service Bureau (SSB). Employed individuals who are not in civil service sometimes have their companies arrange for them to get loans from MFIs. Individuals who are not formally employed usually end up going to loan sharks.

This article aims to help those readers who are civil servants to manage their debt so that the quality of their lives does not decline because of such debt.

*1. Paying in cash is better than borrowing in most cases*

The cost of borrowing is the interest charged on that money. If you borrow $100 and you’re charged 10% interest per month, you’re essentially buying that $100 for an extra $10 a month that you will need to pay.

It is better therefore to always ask yourself if you cannot save the $100 and pay cash for it in the future instead. When you choose to save, then the cost of the $100 is the time it takes to get it.

Basically, therefore, it’s a time tradeoff.

*2. If you can avoid it, don’t borrow to spend on things that don’t help you generate money*

Sometimes you can’t avoid it, but as much as possible, only borrow to use on a project that generates money. This ensures that the profit from that project helps pay for the borrowed money and the interest.

This is better than getting a loan for something that doesn’t generate any money. Such things as food, birthday parties, new clothes when you already have decent ones, a new fancy phone when you already have a decent one etc…

*3. Check closely what you’re spending your money on*

When you start thinking about borrowing, it helps to check what you generally spend your money on each month. You might find that there are things that you’re spending on that you can maybe stop, and save that money.

For example, sometimes we spend more than we need to on things like rentals in a house that we can’t afford, sending children to a school that’s too expensive for us, spending too much on entertainment (alcohol, parties, needlessly traveling to relatives and friends).

It might help to move to a house or room with lower monthly rent. It might make sense to send your children to a cheaper school that’s nearer your home. Maybe the birthday party can be a smaller one. Instead of buying at Jet, try kumabhero where you can get almost new stuff at giveaway prices. Avoid impulse buying. Start creating a budget within what you earn and stick to it.

Sometimes we also spend too much on things because we’re not taking care of them. Observe how you take care of your things (clothes, car, phone, wheelbarrow, broom etc…) and try to take better care of these things so you don’t spend so much on repairs.

*4. When you’re about to borrow, ask about the interest rate*

When a microfinance company offers a loan or a company offers a product on credit, ask about their interest and compare to the rates offered by other Microfinance companies.

In Zimbabwe, Microfinance loans will range in interest from about 9% to sometimes even over 20% per month. While these rates might sound ridiculous, they are largely caused by the cost of money in the country and also the cost of transacting. Below 9% the cost of the business to a microfinance company can be unsustainable.

It’s always prudent to shop around and ask several providers, compare and get the loan that works out cheaper to get.

*5. Avoid a longer term period for the loan*

If you have the option to pay back a loan in 3, 6, or 12 months, try as much as possible to choose the fewest months you can manage. This just means less interest in the end.

You can even ask the bank or microfinance company if you can choose the number of months yourself. You can for example ask them if you can pay back in 4 or 5 months instead of the proposed 6 months.

*6. Pay back the loan as early as possible*

As a civil servant, sometimes you get money outside your salary. Use that money to pay off your debt earlier. All you need to do is to approach the bank or Microfinance company that extended the loan. This will reduce the interest quite significantly.

If your loan is supposed to be paid back in 6 months – try to pay it all back in 4 months if you get the opportunity to do so.

*7. Start creating your personal emergency fund*

People usually borrow because they are in a crisis. In addition to saving for things we want to buy, you also need to save for emergencies. It’s hard to say how much such a fund should be because it differs from person to person, but a good rule of thumb is that you should have at least as much of your monthly salary stashed away as an emergency fund.

Do you have tips to share with others? please use the comments section below.

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