Help! I earn Sh120, 000 but spend all on debts and tithe

My name is Alice, 30, single without kids. I earn Sh120,000 net but I am drowning in debts and expenses. I have three different mobile loans that total Sh46,500: salary advance of Sh30,000 from a bank’s mobile app and a long term loan of Sh900,000 that I am currently servicing. I took it early this year to buy a 50*100 plot in Kajiado with a real estate firm. I pay Sh21,750. I also pay tithe of Sh12,000 to my church every month which leaves me with about Sh9,750. This is not enough to survive on and I have to keep borrowing from apps and friends. I feel like I am drowning even though I earn a good salary. I feel like I made a mistake buying the plot with a loan. Please help me.

Alex Kibebe, the founder of Rubiani Wealth Management Ltd, an investment consultant and business development coach, says:

Purchasing the piece of land is not necessarily a bad decision. With a net income of Sh120,000, a loan repayment of Sh21,750 is reasonable. However, it looks like you were unprepared to service the loan and, therefore, took on expensive short-term debt to compensate for the income reduction. Unfortunately, this spiraled into a cycle of debt that you are now finding hard to break free from. If you deal with these mobile loans and salary advances, you should be able to manage your expenses comfortably. Here are two strategies you may consider to help you break from this debt cycle and attain financial stability.

Also read: Help! I earn Sh150,000 but have no savings or investments because of my spending habits

Option 1

Reduce your monthly expenses to save funds towards settling these debts. From what you have shared, I would expect your current monthly expenses to be Sh98,250 that is financed by your mobile loans of Sh46,500, your salary advance of Sh30,000, your monthly balance of Sh9,750 and Sh12,000 tithe. You now need to come up with a budget that details all your expenses. Next, review the expenses and strike off any that you can do without, at least for the period of getting out of debt. Work towards saving up Sh15,000 from your budget adjustment to go towards paying off your debts.

Once you have achieved this, start paying off the debts from the most expensive one in terms of interest rate and keep doing this until all your debts are settled. This option will require you to remain disciplined and keep your spending low. Based on your current financial situation, consider stopping the Sh12,000 tithe. This amount is not cast in stone, especially for an individual financially grasping straws. The monthly contribution is based on personal beliefs.

Option 2

Taking a longer term loan, preferably with lower interest rate, and using the funds to settle the short-term debts. In your case, consider taking an unsecured (salary) loan of Sh76,500 for a one-year term. At an interest rate of 15%, your monthly loan repayment will be Sh6,905. This loan can then be used to pay off your mobile loans of Sh46,500 and your salary advance of Sh30,000. This way, you will have reduced your monthly loan repayments from Sh98,250 to Sh28,655. Now, ensure that you maintain your expenses within this available funds to keep you from further borrowing. If you do so, you should be out of debt within a year without making any major adjustments to your budget.

Once out of debt, ensure that you avoid taking mobile loans and other short-term debts to finance your lifestyle expenses so as not to get in the same position again. I would advise you to save up the Sh6,950 freed up after settling the loan to a Sacco or Money Market Fund account. This way, you can build up funds for emergencies and possibly grow the fund to fulfil other investment goals such as developing your land. In future, ensure that you adjust your budget to accommodate the loan repayment before taking a loan.