Financial WELLNESS with Richmond Kwame Frimpong: Debt management 101  

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Richmond Kwame Frimpong

In any economic structure, debt is used at three main levels: the government level as captured in a nation’s fiscal policy for economic development, the corporate level for organisations’ capital injection, and the individual level for personal financial support.


State revenues are most often insufficient to finance state spending, thus governments borrow to make up the difference. This is usually done through the issuance of bonds and other securities. For example, Ghana’s public debt currently stands at GH¢304.6billion. Between April and June this year, government intends to borrow GH¢4.59billion from treasury bills and other instruments to finance some projects in the 2022 budget.

The GH¢4.59billion that government intends to borrow is more than the GH¢344.5billion it borrowed in the first quarter of this year. The overall level of indebtedness by a government is typically shown as a ratio of debt-to-GDP. This ratio helps to assess the change in government indebtedness and the size of the debt.


company may use a number of debt instruments to finance their operations depending on their debt strategy as a corporate. Like the state, a company may issue bonds or stocks. It may also fall on loans, some common ones being term loans and syndicated loans. A syndicated loan is granted to companies which wish to borrow more than any single lender is prepared to risk in a single loan. It is provided by a group of lenders, and underwritten by a bank.

Companies also use debt in many ways to leverage the investment made in their assets, ‘leveraging’ the return on their equity. This leverage, that is the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier.


For individuals, debt is a means of using anticipated income before it has actually been earned. Also known as ‘Personal Debt’, consumer debt is an individual financial obligation. Commonly, people use consumer debt on things too expensive to buy with the cash on hand.

Some common types of consumer debt include salary advance, credit cards, mortgages, student loans, car loans and small-scale business loans.

Individuals can also access loans informally, mostly from relatives or friends. Such informal debts are usually more affordable credit. A certain amount of personal debt is necessary to afford any kind of large purchase because not many people can pay for a house or tertiary education for example with the money they have in their savings or investment accounts.

However, high amounts of personal debt can increase the strain on income by making it difficult to honour payment of bills and investment plans. If personal debt is not properly managed, it leads to bankruptcy.

One of the most common ways people fall victim to personal debt is through Credit (and Visa/ATM) Cards. With this accessibility, many people tend to spend more than they can afford. This is primarily because the further away an individual is from real cash, the less an individual feels the ‘pain of paying’ and is, thus, likely to spend more.

Seek Help

Keep an eye on your finances to ensure you do not fall into more debt than you can afford to pay off. Debt should be properly managed if it must benefit you in the long run. Enlist the help of a licensed financial advisor today.

Debt is not the answer to your problems, it is the problem. In my personal view, there is no such thing as good debt. If you cannot pay outrightly, then it means you cannot afford it. Do not choose debt.

You may send comments, questions or suggestions if any to [email protected] and @richmondkwamefrimpong across all social media platforms

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