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How you can consistently avoid falling into a debt trap

By Paul Kariuki | September 30th 2020

Recently, a social media group post ignited a lively debate that drew all manner of responses. The social media user had been listed by a Credit Reference Bureau, and was musing about how the negative listing, other than putting him in bad books with lenders, had made him live within his means.

Another social media user in a similar situation weighed in, saying how he took loans from different mobile apps and got financially ruined in the process. When one loan was due, he would take another from a different app to settle the pending one, and this cycle continued until recently when he lost his job, leaving him unable to service the accumulated loans. 

Debt traps

The saying, “he who goes a-borrowing, goes a-sorrowing” holds true for many. As in the two examples above, there is no denying when one gets a credit facility from a lender, the temptation to take more and more, so long one repays on time, becomes very attractive.

In the process, many end up in debt traps they are unable to save themselves from. John Gakuri, a personal finance expert, says there is nothing wrong with taking loans though you should guard yourself from taking the money for individual consumption. One should take up loans for investment. 

Invest wisely

Zipporah Wairimu, a trader, takes a mobile loan every week mainly to replenish her stock. “I’m able to grow on the principal amount even doubling it through my profit margin,” she says. 

Being careful when it comes to debt is what has kept her from falling into a debt trap. “The cost of doing business is high nowadays. I have to strike a balance between taking that loan and investing what I have,” she says.

If she opts for a long business plan, she would rather take a chama loan because of the flexibility of the repayment period and the low interest rates.

Have a realistic budget

Mr Gakuri also notes that many people do not have a realistic budget plan and will quickly exhaust whatever financial resources they have imprudently.

“Reality is many people do not have budgets; they spend impulsively and then borrow to keep moving,” he says. “It is better to have an expenditure list and stick to it. 

Develop a saving attitude

Petty savings can go a long way in forming the basis of a debt free life. Unfortunately, based on low incomes, many do not want to live within their means by drawing on the little they have saved.

“No matter the little that goes into saving, it can come in handy on a rainy day or address that emergency,” says Gakuri.   

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