My name is Richard. I earn about Sh60,000 after all statutory deductions. I spend as follows: rent Sh13,500, power and water Sh1,500, transport Sh6,000, shopping and groceries Sh15,000, daycare Sh5,000, and Sh10,000 to support my mother and siblings. My wife is currently a student at the KMTC main campus in Nairobi, pursuing nursing. She is not working and is in her second year.
I am part of a table banking group, contributing Sh4,000 monthly. In September, I borrowed Sh90,000 from this group to pay for my wife's fees. The loan repayment is due at the end of this month, but I don't have the money. I am considering taking a loan from a shylock to clear this debt, then re-borrowing immediately to repay the shylock loan within a month.
I also have a Sh30,000 mobile loan through the Equitel app, which is in default, and a Sh7,400 KCB M-Pesa loan accumulating daily interest. Despite working hard, I feel stuck financially. I want to stabilise my finances and buy a second-hand car for a taxi business. The car would cost between Sh400,000 and Sh600,000. However, with my current obligations, I don’t know how to raise this money. Please help me.
Rhina Namsia, founder and CEO of The Acemt Consulting, a training and consultation firm specialising in financial planning and investment advisory.
Instead of focusing on acquiring a car, you need to halt the accumulation of new debt and address your current financial challenges. Breaking the debt cycle is essential. Based on what you've shared, debt seems to be your default solution whenever you face financial difficulties.
The first priority should be the table banking loan. Assuming these are people you know, and given that chamas have specific rules, you could request your chama members to restructure the loan or allow partial deductions from your shares.
This would reduce the loan amount without resorting to shylock loans, which charge exorbitant interest and have inflexible repayment terms. Engaging your chama in restructuring discussions could also lead to leniency, such as avoiding penalties or dilution of shares.
On the other hand, taking a shylock loan will only worsen your financial situation due to high interest rates and strict deadlines.
Debt can also affect your mental health, so adopting effective strategies is vital. Here are some steps to consider:
Restructure the table banking loan: Discuss revised payment terms with your chama.
Tackle high-interest loans: Focus on repaying the Equitel loan and clearing the KCB M-Pesa loan, which is accumulating daily penalties.
Cut expenses: Evaluate areas where you can temporarily reduce spending, such as shopping, groceries, or support for your mother and siblings. Ensure you assess the potential impact on your dependents, especially your toddler.
Your monthly income is Sh60,000, while your documented expenses total Sh55,000 (including chama contributions). This leaves Sh5,000 unaccounted for, which could be used to reduce your debts.
To regain control over your finances, start using a budgeting formula to track income and expenses. Allocating at least Sh5,000 per month to an emergency fund—approximately eight percent of your income—will create a safety net for unforeseen circumstances.
Your wife could also consider taking up part-time work to ease some financial pressure. Share your goals and strategies with her to encourage collaboration, as balancing school and motherhood is challenging.
To increase income, explore side jobs, small business ventures, or negotiating a pay raise. When taking on future loans, analyse repayment strategies and factor in interest rates. For example, consider how you'll fund your wife's remaining semesters without relying solely on debt.
Once you break free from the debt cycle and establish savings, you can revisit plans for a taxi business. This may require financing unless you significantly boost your savings. Engage with individuals in the taxi business to understand costs, margins, and realistic earnings before committing.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
