How inflation and living beyond means create a perfect debt storm

By Dayo Yusuf

Steve Wanyoike receives his payslip on the 26th of every month, but it brings him little joy other than the certainty of a fixed sum of money hitting his bank account.

"My payslip is like a stab in the heart every day. It constantly reminds me that I am poor!" he jokes.

His job as a restaurant waiter pays Steve barely enough to get by in a metropolis like Nairobi.

After accounting for rent, food and transport, he isn't left with anything to indulge in some of the simple pleasures of life that have become "luxuries" for him because of runaway inflation in Kenya.

Many like Steve complain that their salaries aren't worth what they were a few years ago.

"Seven years ago, I worked in a restaurant where I earned even less than what I am getting now. But somehow, my expenses were met, and I even had some surplus. Now, my salary disappears soon after it comes in at the end of the month," he tells TRT Afrika.

What makes Steve's financial condition worse is debt repayment eating into his budget. He knows what's happening but can't survive without borrowing.

"My payslip shows a fixed loan repayment to the bank, and a chunk goes into a welfare cooperative loan. These are deducted directly from my salary, so I don't even get to see the money," he rues.

Publilius Syrus, the Latin writer born 85 BC at Antioch in present-day Türkiye, may have unwittingly given voice to the pressures of life those like Steve face in the modern world when he said, "Debt is the slavery of the free."

Cesspool of borrowing

Although the Kenyan economy has been shaky lately, experts warn that people often find themselves in difficult situations because of mismanaged personal finances.

In most cases, this has to do with having little or no knowledge of handling money.

"Many people leave school ignorant about personal finances," Charles Macharia, a financial advisor in Nairobi, tells TRT Afrika.

"It's important to know in advance how you plan to spend whatever money you have earned."

Steve says that as burdensome as his loans are, he can't survive without them. He points out, seemingly half in jest, that even countries run on debt.

"If the government itself has a loan from China, who am I to live without a loan?" says Steve.

According to personal finance gurus, the quickest way to get oneself out of a tight corner — by borrowing from family, friends, employer or bank — isn't always the right option.

People taking loans when there is already more to be repaid is a sure way of digging themselves deeper into debt.

Lure of easy loans

In Kenya, as in many developing economies aspiring to high growth, the easy availability of loans means ordinary people are becoming financially profligate.

Banking salespeople hawking easily accessible loans on the streets of Nairobi is a common sight.

Also, mobile money systems shove loans literally in your face. This could be a blessing if someone needs cash for an emergency, but the flip side is a debt trap.

"Understand loan terms. Familiarise yourself with interest rates, fees, and repayment conditions to prevent hidden costs from derailing your finances," advises Charles.

"The key is to limit borrowing to essential needs or productive investments, avoiding the temptation to borrow overmuch."

Avoiding loan pitfalls

A rule of thumb is to avoid borrowing from banks or other lenders for consumption needs unless necessary.

Experts advise citizens to focus on loans supporting income-generating activities, such as business ventures or asset investments.

Another familiar trap is to borrow from unregulated lenders who might show up in moments of desperation and offer loans at terms that are unreasonable and often borderline illegal.

These lenders invariably want to keep people paying interest for as long as possible while the principal stays unpaid or shrinks negligibly every month.

For Steve, the thought of downsizing his lifestyle throws him off, although he realises it may help solve his problems.

"I get depressed when I consider all the years I have been working, yet I have nothing to show for it," he tells TRT Afrika.

Charles advocates seeking professional help if anyone is burdened by debt, defaults, and bankruptcy.

"Consult an expert and communicate with your lender to renegotiate terms, if necessary," he says. "Make no mistake, banks are there to make money. If you have to, use loans judiciously. And learn to live within your means."

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