You may be worried about falling into financial difficulties during this difficult Covid-19 period. For example, if your income drops due to coronavirus restrictions or you incur unexpected expenses, you may find you don’t have enough to cover your usual outgoings.
Sumac Microfinance Bank CEO John Njihia answers some of the questions you might have around paying your bills and meeting other financial commitments. As this situation is rapidly changing, the information here is likely to change in the weeks ahead.
What to do first if you have lost income
If you have been affected by a loss of income or think you will be in the near future, Mr. Njihia proposes that you should try to take the following steps:
Check to see what financial supports are available, depending on your own situation (see above).
Develop a short-term budget for a period of three months to give yourself a better understanding of money coming in and money going out and identify any shortfall.
When you prepare your budget, focus on priorities – food, utilities, accommodation, phone and broadband connectivity, medical care and expenditure on your children or dependants.
If, after you have developed a budget for the next three months, you think you are going to have a difficulty in making payments or repaying loans you should contact your creditors by email or phone. It is fine to contact by phone but you should always follow up in writing.
Creditors are aware that COVID-19 is going to impact on people’s income. They should be willing to work with you to reschedule over the short-term, where this is necessary based on what you can afford to pay. It is important to get in touch early.
If possible, try to avoid borrowing more as a solution to a drop in income. Where you can, avoid high cost credit like shylock loans. They could drive you into a more susceptible financial situation that may be extremely stressful in this period of time.
Which outgoings should I prioritize?
“If your income drops due to coronavirus you may find you don’t have enough to cover your usual outgoings, Mr. Njihia says. Here are some steps you can take:
Step 1: Focus on priority living costs: You should prioritize spending on food, medical care and utilities to prioritize your health and wellbeing.
Food: Find out how you can get cheap cereals, maize flour, rice from Mwea and other related money saving activities when buying food suppliers. For example, it will cost you Ksh1,175 to buy a 5kg bag or rice. Yet for only Ksh1,300, you can buy a 10kg bag of rice in Mwea and have it transported to Nairobi for your collection. Such money saving tactics could go a long way.
Medical costs: This is the time to stay healthy, eat healthy, and when things get a little tough because of illness, see your doctor if you have medical cover. In case you don’t have one, you may want to consider going to a government facility that is reliable and cheap.
Utilities: You should continue to make payments on utilities such as water and electricity to avoid disconnection.
Step 2. Make a list of all your debts and bills – your debts might include, for example:
Mortgage or rent
Hire purchase payments
Utilities such as phone or internet bills
Payments to KRA etc
Make a list of who you owe money to and how much your debts or bills are each month. Make sure you can pay for your priority living costs before you prioritize payments of other bills and debts.
Step 3: Prioritize your payments – work out which debts you need to pay first after prioritizing food, medical and utility costs. Some debts are more important than others. Generally, these are where creditors have extra powers to, for example, repossess property or evict you.
Mortgage payments: if possible, you should continue to pay your mortgage. If you don’t think you can make the full repayment due to a drop in income you should contact your lender as soon as possible. You may be able to avail of a payment break on your mortgage. You should maintain the maximum payment you can afford towards your mortgage.
Rent payments: this is a priority because you want to maintain payments to support your tenancy. If you are having problems meeting your rent payments, contact your landlord and see the best way forward on the same.
Step 4: Contact your creditors if you feel that you may fall behind on your payments.