Help! My husband and I took loan to buy a plot, we are now drowning in debt

My name is Pauline. I am 38, married, and have two children. We live in Nairobi. My husband and I both have full-time, permanent, and pensionable jobs, earning a combined Sh190,000 after statutory deductions.

Our monthly expenses are as follows: Rent Sh30,000, electricity and water Sh3,000, transport Sh8,000, house help Sh10,000, shopping Sh25,000, support for parents (black tax) Sh15,000, upkeep for orphaned niece in college Sh10,000, school fees (termly) Sh24,000, cooking gas Sh5,000, children’s Sunday outings Sh5,000.

We are overwhelmed by debt, some of which we can’t even account for.

Our outstanding debts include: unpaid insurance premiums Sh45,000, chama loan Sh130,000, mobile loans Sh67,000, Helb loan Sh137,000 (Sh6,000 monthly deduction), Sacco loan Sh40,000 (Sh40,000 monthly deduction), bank loan: Sh24,000 (Sh24,000 monthly deduction).

We have been repaying the Sacco and bank loans for 18 months, with 30 months remaining. The loans were used partly to start a business—which failed—and partly to purchase a 40x80 plot in Ruiru, where we hope to build a home. Please help us regain financial stability, clear our debts, and start our homeownership journey.

Gertrude Njeri is an accountant, personal finance and investment consultant. She works as a community manager for an investment company based in Nairobi.

First, I commend you and your husband for your generosity in supporting your niece and parents. However, to continue being a blessing to others, you must first regain financial stability.

The good news is that your expenses are lower than your income, meaning you are in a better position than many people facing debt. After expenses, you have Sh74,000 left each month—this is your key to clearing debt faster and securing your future.

Step 1: Renegotiating loan repayments

To free up cash for aggressive debt repayment, negotiate with your Sacco and bank to reduce your monthly instalments. Unlike shylocks and micro-lenders, most banks and Saccos are open to restructuring loans rather than allowing them to default.

• Sacco loan: Reduce monthly payments from Sh40,000 to Sh25,000 by extending the loan term.

• Bank loan: Reduce monthly payments from Sh24,000 to Sh15,000.

This adjustment frees up Sh24,000 monthly for settling high-interest debts first.

Step 2: Clearing debts using the debt snowball method

Prioritise clearing smaller debts first while continuing minimum payments on larger loans. This method provides quick wins, keeping you motivated.

Debt repayment plan (First 12 months)

Months 1-3:

• Pay off insurance premium (Sh45,000) in full (Sh15,000 per month).

• Pay Sh13,000 per month towards mobile loans.

Months 4-6:

• With the insurance cleared, increase mobile loan payments to Sh28,000 per month (Sh67,000).

• By month 6, mobile loans are fully paid.

Months 7-12:

• Redirect Sh30,000 per month to clear the Chama loan (Sh130,000).

• By month 12, the Chama loan is fully cleared.

At this point, your only remaining debts will be:

• Sacco loan: Sh25,000/month (30 months left)

• Bank loan: Sh15,000/month (30 months left)

• HELB loan: Sh6,000/month

Once smaller debts are cleared, you can increase payments on these.

Step 3: Generating income from your land

Your plot in Ruiru is currently a non-earning asset. Instead of letting it sit idle:

a) Lease it for business use-temporary storage, garage, or parking. Minimal capital is required to oversee it.

b) Rent it to a company for temporary development or storage.

Step 4: Saving for home ownership

Now that you own land, avoid rushing into construction while still in debt. Instead, focus on clearing loans first. Once debt-free, you will have Sh74,000 per month available for investments.

Suggested savings plan (post-debt-free)

Rather than starting another risky business, invest in stable options:

1. Stock market: Invest in dividend-paying stocks for passive income. Use platforms like Hisa App. Consider taking an investment class or working with a financial consultant to identify the best stocks.

2. Government bonds and treasury bills: Particularly tax-free infrastructure bonds. These can provide quarterly passive income.

With a solid investment buffer and a good Sacco track record, you’ll access affordable future loans when needed. The passive income from these investments will help fund your home construction in manageable phases.

Have a financial dilemma? Email us at [email protected] with your query and contact details.