Hello Millenial Readers,

Welcome back to another conversation about Personal Debt. In our previous post, we discussed what personal debt is all about, the different forms of debt and why some Millennials and Gen Zs end up in debt.

As we saw earlier debt can come because of student loans, the convenience of accessing it in today’s digital society and also the interesting forms it takes for example the concept of buying now and paying later. Isn’t it interesting how the buy now and pay later concept is really embraced in everyday life? You can find it with the mama mboga or ‘Mathe wa kibanda’(women who sell food from their kiosks) who give you their products in exchange for paying them in the future. It does help out, especially during the middle of the month when things are a bit tight.  Debt is incorporated into our culture, conversations, advertisements and all. However, do we sit to think of the consequences of having debt? 

What are the Consequences of Personal Debt?

1. Debt Stress

Yes, this is actually a thing. This stress is often associated with feelings of anxiety and sadness about having to pay what you owe especially if you have a shortage of cash. I do believe that debt is something that lingers in one’s mind whether consciously or unconsciously. According to Debt.Org apart from the two symptoms that arise when one is faced with debt, people in debt develop a sense of anger. They are angry at themselves for getting into debt, and at others who they are responsible for eg. their kids who are borrowing money to buy stationary, or a new school bag. They can even be resentful of their work because they are getting enough to pay up their debts. Such resentment and anger can eventually strain their relationships with those surrounding them such as family friends or coworkers.

2. It Can Become a Habit Which Can Lead You Further Debt

Sometimes getting into loans may be inevitable e.g. In the case of HELB loans for university or college students. Once they graduate and are fortunate to get a new job, they may begin paying their student loan. It’s at this point that some move out and are now starting their adulting journey. The reality is that, especially for some entry-level jobs, the salary may be enough to repay the student loan and cater for some personal resources.

However, the pressures of keeping up with current trends and the constant desire to fit in may push one to fall into the trap of getting into more debt in order to keep up with society e.g.Buying a new phone, going into debt to go for that awesome trip you’ve been planning with your friends or even a car loan. Furthermore, the convenience and quick accessibility of such loans may be tempting. Unfortunately, the more we add debt to ourselves, the more we end up borrowing to pay for previous debts and the interest attached to it.  If we don’t reflect on why we are borrowing and weigh the costs vs benefits, we may end up in deep financial holes which eventually become hard to come out of.

3. Paying More Because of Interest

When borrowing money from a bank or an institution like Saccos, we often pay interest(money we pay the lender for giving us the loan). In the case of unsecured loans such as digital loans, mobile loans or even cases where we buy an appliance or a phone and pay later, we end up paying a lot of money above what was borrowed because we are paying interest. Interest helps lenders such as banks pay themselves and gain as much before someone defaults. 

In the case of unsecured loans,(the ones you don’t need to give a security like a title deed or a car) lenders put higher rates so that they can be in a position to recover most of what they gave the borrower. In addition to this, when a borrower is unable to pay their debt on time, there are penalties you pay e.g. you pay an extra percentage for failing to pay your debt on time. 

Unfortunately, there are some companies which may take advantage of this and the borrower ends up paying almost two or three times the amount. That is why we see the government coming in to regulate such institutions.

4. Strained Relationships and Questionable Reputations

Have you ever found yourself in a situation where a friend borrows you money and promises to return but then it becomes a Loong story and they end up not repaying you? In some cases, it may be sheer bad luck in their end and they are unable to pay at the scheduled time. For others, they simply don’t pay. Some may borrow again and you give them again in good faith only for the same cycle to continue.

What is the result? It may reach a point where as much as you love them, you may not trust them with money as they have proven themselves untrustworthy in this area.

Unfortunately, the people who have such a reputation may end up having strained relationships with those they owe money to. This is because the other party may feel that their trust was violated. Where a loan is given informally e.g. in the case of relationships, trust is key and it acts as a security. Once violated, it becomes harder to build it back. Another risk is that in the case of true emergencies, the first people we reach out to are our friends and family. They may not bail you out when you really need them because of the poor reputation you have with money. 

5. Limits Life Choices and Options

This happens as a result of having to pay your lender. In cases where salaried employees have borrowed money, they may opt to pay monthly instalments which are cut from their salary once the paycheck comes in the bank. Eg. Sacco loans, mortgage, car loans. The advantage of such arrangements is that it is convenient for the borrower to pay their debt without having to do several transactions to pay their lender.

However, by the time you receive the check, the salary tends to be lower because much of your income has gone to paying loans. In worse cases, there are those whose salary goes towards paying loans and they need other sources of income to finance their everyday lives. This may hinder you from pursuing some opportunities or achieving some goals such as buying some home appliances(especially when you’ve moved out), investing or even starting a business debt-free due to the limited financial resources.

Final Thoughts

For Millennials and Gen Zs, financial literacy around the realities of debt is quite a critical issue to think about, research more on and build the right knowledge around it. Furthermore, debt affects both current and future relationships such as marriage. However, it is not over for those in debt already. We don’t need the quote in the above image to be our reality. We can go against the current tide and change our narrative. In our next article, we will discuss some of the ways we can be free.

Joy N. ❤❤❤