In today’s time, debt relief is a goal because of all the debt around us. From the time we get to college, to our first employment, to our first house and even when we have kids. Debt varies in amount as well as various multinational companies are millions in debt to that 6th-grader in Houston-area middle school whose breakfast was trashed because he was short of 30 cents in credit as reported by Washingtontimes.com.
Even colleges are also in debt. But one learning institution recently made headlines as they went down a route not usually wandered on by those in debt. As reported by Mlive.com, Calvin College, a private school in Grand Rapids, Michigan, put together a fundraising project to raise the money to address their debt problem.
The school was looking at a long-term debt of $116 million. At the moment, the school needs to raise $25 million to pay down debt and start on the right track. The school has been around for quite some time now being built in 1876 but the way it handled its finances in the past years got the school deeper in debt. Debt relief could be a far dream with a number of payments they had to make. Then they started fundraising.
The school was able to raise the target amount in 8 months time. It was a herculean task and made possible by a strong alumni network and the hope of quality education being turned out by the school in its students.
Though unconventional, this is not the first time fundraising was done to pay off debt. Washingtontimes.com carried a story early this year about an eight-year-old student from Michigan who started the “Pay It Forward: No Kid Goes Hungry” campaign. This was when his friend was denied hot lunch because he did not have enough credits for lunch.
Why debt relief is a goal for the school
There were missteps along the way that got the school deep in debt. As they are in the rebuilding stage, it would benefit a lot of institutions and even individuals if we look back and see what went wrong. Analyzing and looking at the insights and lessons from the circumstances that lead them to debt would yield a lot of learnings.
Proper use of money
We have different goals in life and a lot of them requires financial counterpart. That house we dream about would need to be bought first or taken into a mortgage. That car we always wanted to drive would require finances as well so we can purchase and drive it around town. That college degree we want to graduate with needs tuition fee so we can carry it in our job hunt.
To make these happen, we save up for it or we allocate funds to pay for it. That power tool we need to start making DIY repairs at home, we can put away a few dollars a week so we can purchase it at the end of the month. But if we use that saved up money to buy something else, we forego the original intention for the money and would have to save up for it again.
That is what happened with Calvin college. They had funds to start construction on some buildings on the campus. Good move considering they had the money and a 390 acres space to build around in. But the problem was they took the money and put them in investment instruments. The intention was to use the the income from the investment to pay off for the construction expense.
There are several investment options to choose from. Some people and companies use them as a debt relief option but using them and maximizing the tools needs careful planning and thorough understanding of the risks.This is where Calvin college’s problem started.
Below par investment income
The school had the best intention in mind. Invest the capital and earn off from the income to pay off for construction expenses. If done right, they would finish the building project and still have the capital intact. They can even use it for other building projects. The forecast might have been favorable that the school voted on it.
What the school did was to take out a loan so the monthly payments can be in small amounts enough for the investment income to cover. This is one form of passive income where you make your money work hard for you. The problem was the investments did not yield the expected results and payments are not made.
Unbudgeted payment
Knowing how much money comes in is essential to plan who much money comes out and vice versa. This budget plan allows you to keep track of finances and avoid having to think about debt relief options. The school did not budget the payments for the year and when the time came that payments had to be made and the investments did not yield expectations, they had to cut budgets from different areas.
Rebuilding the finances
After Calvin college raised the money, there are the steps they took to ensure they are on the right track in terms of their finances. Calling it budget prioritization plan, the school laid out a plan to get them out of debt and ensure they are out of debt. Consumers can learn a lot from these and how to handle finances the right way.
Internal audit
The school took a good close look of their internal processes and procedures to ensure there are not any loopholes in their planning phase. This is essential before they can reach out again for benefactors to believe in the system .
Consumers can do this as well in their own quest of financial freedom using any debt relief programs. Study their own spending and income and see where they can improve. There is always a big room for improving any process whether as big as a learning institution or as small as those of a family of five.
Budget cuts
As soon as the internal audit was complete, the school now has a clear picture of where budget cuts can be executed. Whether to strike out non-performing courses or control utilities, the school can save up and add that up to debt payments.
Same thing with consumers, taking on a frugal living can do wonders for the budget. It can free up some funds that you can redirect to either savings or retirement or emergency funds. See where you can lower down or eliminate expenses altogether. This will do wonders for your financial standing down the line.
Revenue increase
The school will also concentrate on increasing revenues from enrollment and cashing in on non-performing real estate. This means prioritizing those performing sources of income and letting go of those that can be sold. Increasing their revenue will help the company pay for their debt and provide cushion in case the same incident strikes their finances.
We can learn from this move by looking for ways to increase income. It could be from taking on a second job, putting up a side business or doing yard sales. The additional income can be used to pay off debt and save up for the future.
Debt refinancing
There are several options depending on the financial situation. There is no single formula that can apply to all. Each situation has to be carefully studied to discern the most suitable course of action. The school is now refinancing their debt as a way to address their debt problem.
This is one of the many possibilities to achieve debt relief. Consumers can take refinancing or consolidate their debt to make it easy to make one payment every time.
There are a lessons consumers can learn from even the biggest institutions including colleges. They have their own share of financial difficulties and their own take on how to solve them. We can look into their process and learn from their mistakes and apply those debt relief options that works.