My name is Shadrack. I am a 43-year-old family man currently working in Nairobi. I earn Sh114,000 gross. My deductions are as follows: Sh36,000 for a loan due eight years from now, Sh6,000 for a loan due four years from now.
I have Sh3,000 going to Sacco shares and the net of Sh19,000 goes to Sacco for an advance due in one year. I have nothing to show for the loans as they are just refinancing for daily and monthly expenses.
My expenses are: Rent Sh10,000, food Sh10,000, transport Sh3,000. I borrow to pay school fees for my five children and other expenses. The rest of my deductions are statutory, and pensions. Please help me as I feel my ship is sinking fast. Can I be redeemed financially?
Alex Kibebe is the founder of Rubiani Wealth Management Ltd and an investment consultant and business development coach
Getting out of your financial distress - and eventually out of debt - is possible, but it will require discipline and financial sacrifice especially in the early stages.
To succeed, you must minimise or stop taking on new debt and begin building a buffer to cover school fees and other recurring expenses that keep pushing you into borrowing. Over time, this will allow you to regain control and work towards longer-term financial goals.
Your first priority should be avoiding new loans, especially over the next 12 months, so that funds freed up after repaying your Sacco loan can be directed towards resolving your financial situation.
A total of Sh61,000 from your income goes to debts every month. You need to be clear if these are the full amounts or whether you have other smaller debts, particularly mobile debts. With much of your income tied up in loan repayments, Sacco contributions, and basic living costs, your financial flexibility is quite limited.
You will therefore need to come up with and stick to a strict budget while immediately cutting your expenses to avoid new debt. Start by reviewing your housing and food costs to see what areas can be slashed without disorienting your life radically.
For example, you may consider moving to a slightly cheaper house and cutting back on food spending to salvage at least Sh5,000 per month. These savings can be used to plug the school fees gaps and cover urgent needs currently funded through debt.
Whereas you have not stated what level of education your five children are currently enrolled at, you might want to explore the public school system if they are in private institutions, particularly at primary level.
This would release the pressure of recurrent borrowing for fees, and allow you to use the Sh5,000 to accelerate your repayments – for example for the four-year loan or the one-year advance that will free up Sh19,000 and bring your surplus total to Sh24,000 (Sh19,000 and Sh5,000) monthly in a year.
Note that if your loans are on a reducing balance basis and the terms are acceptable, you can redirect this amount to reducing the principal amount which will gradually reduce your debt burden.
Once the Sacco advance is cleared in a year, you will have freed up Sh19,000 monthly. It is critical to manage this amount wisely. Use part of it - ideally not more than Sh7,000 - to cover any shortfall in your monthly budget and then channel the rest into a Money Market Fund (MMF).
Whereas an MMF is not a high-yielding investment vehicle, it will allow you to earn interest on your savings while keeping the funds accessible for school fees and emergencies.
Over time, this buffer can grow to cushion you from future borrowing needs. Be sure to compare different MMF providers and choose one offering competitive returns, stability and reliability. Remember, money market funds are subject to a 15 per cent withholding tax.
Another route worth exploring is debt consolidation. This involves taking out a single loan with better terms to settle your existing debts – and thereby reducing your total monthly repayments.
However, you need to explore this option with caution. A poorly structured consolidation loan can worsen your situation. Consult a professional debt advisor before taking this step to ensure the new arrangement actually improves your cash flow.
Keep in mind, consolidation can only be effective if you completely avoid taking on new debt afterward. Do not refinance your current debts with more expensive debts. If you choose this option, direct the savings from the reduced loan repayment to an MMF as advised.
Once you have stopped new borrowing and started building a savings buffer, shift your focus to accelerating loan repayments, starting with the shorter-term one due in four years.
Beyond managing your debt, consider looking for ways to increase your income. Extra earnings can reduce your reliance on loans and help speed up repayments.
If you have spare time in the evenings or on weekends, consider a side hustle or part-time job, such as online freelance work, consultancy, tutoring, or small-scale trading based on your skills and available opportunities.
Even an additional Sh5,000 to Sh10,000 a month can make a big difference. Drop your ego and don’t be picky about the available side hustles. It is the wearer of the shoe who knows where and how it pinches.
If you have a spouse, be open with them on the debt situation and how it has tied up your family’s progress. Have your spouse consider income-generating hustles.
These can range from formal to informal work. For example, a simple hustle such as selling vegetables can significantly bring down your household food budget.
Currently, the whole burden is on you, but if your spouse can at least bring in Sh10,000 on the table, the pressure will be significantly reduced.
With consistency, you will eventually clear your debts and start redirecting your income towards other financial goals such as a children's education fund, retirement savings, or even building a home.
If you have any money problems, or if you’d like advice on managing your finances, feel free to get in touch at [email protected].
