This archive report was first published on 2 October 2021.
Breaking Free from Debt: Expert Advice for Kenyans ¶
As the country grapples with a ballooning debt crisis, experts are urging Kenyans to take control of their finances and break free from the debt trap.
According to the Central Bank of Kenya (CBK), household debt has risen to unsustainable levels, with the Covid-19 pandemic exacerbating the situation.
CBK Governor Patrick Njoroge warned that the debt crisis is largely fueled by unregulated digital lending platforms, which have made it easy for Kenyans to borrow money.
"We are concerned that there is a ballooning of debt in the private sector," he said.
At the end of December last year, household loans advanced by the banking sector stood at Sh843.5 billion, out of which Sh70.1 billion was classified as non-performing.
So, how can Kenyans break free from debt? Experts say it starts with prioritizing expenses and cutting unnecessary spending.
George Kamau, a senior portfolio manager at ICEA Lion Asset Management (ILAM), advises that having a budget and sticking to it, as well as saving at least 10 per cent of one's income, is a good starting point.
"Prioritize your spending areas and have an emergency fund that covers at least six months of running expenses," he said.
Mr. Kamau also warns against resorting to more debt, no matter how tough things may get at times.
"It may be difficult at first, but you honestly don't need it," he said.
Another expert, Jijenge Credit Chief Executive Peter Macharia, advises that if one finds themselves indebted to many lenders, they should try to consolidate the loans in one financial institution.
"You can go to your Sacco, which has a friendly interest rate, and negotiate a long-term repayment plan," he said.
Mr. Macharia also urges people to live within their means and avoid borrowing to fund their lifestyle.
"Debt is not a sin, but one should just be alive to the fact that they must pay," he said.
ILAM General Manager for Business Development and Client Service Elizabeth Irungu advises borrowers to seek clarity on interest rates before taking up a loan.
"Computing one's interest makes them alive to the high costs of borrowing," she said.
Experts agree that breaking free from debt requires a combination of financial discipline, smart spending habits, and a clear understanding of the interest rates and terms of the loan.
By following these expert tips, Kenyans can take control of their finances and break free from the debt trap.
