Taking a new loan to repay an existing one may seem like a convenient way to manage financial pressure. When a repayment deadline approaches and money is unavailable, borrowing from another lender can provide temporary relief. However, when this becomes a regular habit, it can create a debt cycle that is difficult to escape.
Many Kenyans find themselves borrowing from mobile loan apps, banks, SACCOs, digital lenders and shylocks to settle existing debts. Instead of reducing their financial obligations, they end up accumulating more loans, paying additional interest and struggling to meet multiple repayment deadlines.
The problem becomes worse when a borrower takes a new loan without addressing the financial challenges that caused the original debt. The new money clears an immediate obligation, but the underlying problem remains. When the next repayment falls due, the borrower is forced to seek another loan.
This creates a cycle in which income is increasingly used to service debt rather than meet everyday needs, build savings or invest in long-term financial goals.
Breaking this cycle requires more than stopping borrowing. It involves understanding how much you owe, changing spending habits, negotiating with lenders and developing a realistic repayment strategy.
If you are using new loans to repay old ones, here is how you can regain control of your finances.
- Acknowledge That You Are Trapped in a Debt Cycle
The first step towards breaking the debt cycle is recognising that borrowing has become a regular way of managing your finances.
Taking a loan occasionally to address an emergency does not necessarily mean you have a debt problem. However, repeatedly borrowing to repay existing loans is a warning sign that your financial obligations may have exceeded your ability to meet them.
For example, you may have a KSh 30,000 mobile loan that is due at the end of the month. Instead of paying it from your income, you borrow KSh 35,000 from another digital lender. You use KSh 30,000 to clear the first loan and retain KSh 5,000 for other expenses.
The new loan now becomes your responsibility, and you must repay it with interest and applicable charges.
When the next deadline arrives, you may again borrow from another lender to avoid defaulting.
Although each new loan appears to solve an immediate problem, your total debt burden may continue increasing.
Recognising this pattern is important because you cannot solve a financial problem that you are unwilling to confront.
- List All Your Outstanding Loans
You cannot develop an effective debt repayment plan without knowing exactly how much you owe.
Start by listing every outstanding loan, regardless of the lender or amount.
Include bank loans, SACCO loans, mobile loans, credit card balances, digital credit facilities, salary advances, hire-purchase arrangements and money borrowed from friends or relatives.
For each loan, record the lender, outstanding balance, interest rate, repayment deadline, monthly instalment and any penalties or additional charges.
For example:
| Lender | Outstanding balance | Monthly repayment |
| Bank loan | KSh 150,000 | KSh 12,000 |
| SACCO loan | KSh 100,000 | KSh 8,000 |
| Mobile loan | KSh 25,000 | KSh 6,000 |
| Digital lender | KSh 20,000 | KSh 5,000 |
| Total | KSh 295,000 | KSh 31,000 |
The figures above are illustrative.
Once you have listed your debts, calculate the total outstanding balance and the amount you must pay every month.
You may discover that a significant portion of your income is going towards loan repayments. This explains why you keep running out of money before the next payday.
Also request updated statements from your lenders to confirm the outstanding balances. Do not rely entirely on memory or old loan agreements, especially where interest and penalties may have accumulated.
- Stop Taking New Loans to Clear Existing Debts
If you want to break the debt cycle, you must stop treating new borrowing as the default solution whenever a repayment deadline approaches.
This may be difficult, particularly if lenders are sending reminders or you fear defaulting. However, continuously moving debt from one lender to another rarely addresses the underlying financial problem.
Before taking another loan, ask yourself whether the money will generate income, address a genuine emergency or simply postpone an existing repayment.
If the main purpose is to clear another loan, examine whether you are genuinely improving your financial position or just transferring the debt.
Avoid opening additional mobile loan accounts simply because one lender has declined your application. Multiple borrowing facilities can make it harder to track repayment dates and the total amount owed.
You should also avoid using one loan to meet everyday expenses while your salary is committed to servicing previous loans.
The objective is to stop increasing your debt while developing a plan to clear the existing obligations.
- Prepare a Monthly Budget and Identify Where Your Money Goes
A budget can help you understand why you keep borrowing before the end of the month.
Start by calculating your monthly income after statutory deductions. If you earn a salary, use the amount that actually reaches your bank account rather than your gross salary.
Next, list your essential expenses, including rent, food, transport, school fees, electricity, water and other necessary household costs.
Then account for your existing loan repayments.
For example, a person earning KSh 60,000 monthly may spend KSh 20,000 on rent, KSh 12,000 on food, KSh 5,000 on transport, KSh 4,000 on utilities and KSh 15,000 on loan repayments.
This leaves only KSh 4,000 for other expenses and emergencies.
If unexpected costs arise, the individual may be forced to borrow again.
A detailed budget helps identify expenses that can be reduced or temporarily eliminated. You may discover that subscriptions, frequent restaurant visits, unnecessary shopping or other discretionary spending are consuming money that could be used to repay debt.
However, do not create a budget that ignores basic needs. A repayment plan that leaves you without enough money for food, transport or essential household expenses is unlikely to succeed.
Your budget should strike a balance between meeting essential needs and reducing your outstanding debt.
- Prioritise Your Loans Instead of Paying Randomly
When you have several outstanding loans, it is important to develop a repayment order.
Two commonly used approaches are the debt avalanche method and the debt snowball method.
The debt avalanche method involves prioritising loans with the highest interest rates while making the minimum required payments on the other debts, where possible.
For example, if you have a mobile loan attracting high charges and a bank loan with a lower interest rate, you may prioritise the more expensive mobile debt.
Once it is cleared, the money previously used to service it can be redirected towards the next most expensive loan.
This approach can reduce the total interest paid over time, provided you continue meeting the required payments on other accounts.
The debt snowball method takes a different approach. It involves clearing the smallest outstanding loan first while maintaining required payments on the other loans.
For example, if you owe KSh 10,000 to one lender, KSh 30,000 to another and KSh 100,000 to a bank, you begin by clearing the KSh 10,000 debt.
Once the smallest loan is settled, you redirect the money towards the KSh 30,000 debt.
This method can provide motivation because you see progress as individual loans are cleared.
The best approach depends on your financial circumstances. However, do not ignore contractual repayment deadlines or legal obligations while prioritising your debts.
- Negotiate With Your Lenders for More Manageable Repayment Terms
If your current loan repayments are too high, contact your lenders and explain your financial situation.
Do not wait until you have missed several payments. Early communication may give you more opportunities to discuss possible solutions.
Depending on the lender’s policies and the terms of your agreement, you can request loan restructuring, an extension of the repayment period or a revised instalment schedule.
For example, if you are required to pay KSh 20,000 monthly but can only afford KSh 12,000, you can ask the lender to consider a longer repayment period with lower instalments.
However, a longer repayment period may increase the total interest you pay. Request a revised repayment schedule showing the new instalment, interest, fees and total amount payable before accepting the arrangement.
If you have a SACCO loan, approach the credit department and ask whether the institution can consider restructuring your facility.
You can also request an updated statement and discuss how to manage accumulated arrears.
Do not assume that a lender has approved a new arrangement simply because you have discussed it with a loan officer. Obtain written confirmation of any revised terms.
- Consider Debt Consolidation Carefully
Debt consolidation involves combining several debts into one loan or repayment facility.
For example, instead of paying four different lenders every month, you may qualify for a single facility that settles the existing loans.
This can simplify repayment because you have one instalment and one repayment deadline to manage.
However, debt consolidation is not automatically a solution to over-indebtedness.
Before accepting a consolidation loan, compare its interest rate, processing fees, insurance charges, repayment period and total cost against your existing loans.
A lower monthly instalment may appear attractive, but it could result from extending the repayment period and paying more interest over time.
You should also establish whether the new lender will settle the existing debts directly or deposit the money into your account.
If you receive the money yourself, ensure it is used to clear the agreed loans. Otherwise, you may end up with the consolidation loan and the original debts still outstanding.
Most importantly, avoid taking a consolidation loan if you are likely to continue borrowing after clearing the existing facilities. Without changing your spending and borrowing habits, you could end up with even more debt.
- Reduce Unnecessary Expenses and Redirect the Savings Towards Debt
Breaking the debt cycle may require temporary lifestyle adjustments.
Review your monthly expenses and identify areas where you can save money without compromising essential needs.
For example, you may reduce entertainment spending, limit unnecessary shopping, prepare meals at home more often or cancel services you rarely use.
If you spend KSh 5,000 monthly on non-essential expenses, reducing this amount by KSh 3,000 could free up money for loan repayments.
You should also avoid making large purchases on credit while trying to clear existing debts.
Do not use credit facilities to finance holidays, expensive gadgets or lifestyle upgrades when your current income is already committed to servicing loans.
The money saved from reducing discretionary spending should be directed towards your repayment plan rather than absorbed by other expenses.
- Find Additional Sources of Income
Sometimes, reducing expenses alone may not be enough to clear your debts.
If your income is too low to cover essential expenses and loan repayments, consider ways of increasing your earnings.
You can explore part-time work, freelance assignments, consultancy, tutoring, online services or a small business that does not require significant start-up capital.
For example, someone with skills in writing, graphic design, photography, accounting or digital marketing may offer services outside their regular working hours.
You can also consider selling unused household items or other assets, provided doing so does not affect your ability to earn an income or meet essential needs.
However, be careful about starting a business that requires taking another expensive loan. The objective is to generate additional income without creating new financial obligations.
Before committing to any side activity, assess the costs involved, the time required and the realistic income you can expect.
Use the additional money to accelerate debt repayment and build some financial security.
- Build an Emergency Fund to Avoid Future Borrowing
One reason people repeatedly take new loans is that they have no money set aside for unexpected expenses.
A medical bill, car repair, school expense or temporary loss of income can force someone to borrow, even when they are already servicing several loans.
An emergency fund provides a financial cushion for such situations.
You do not need to accumulate a large amount immediately. Start by setting aside a small, affordable amount every month.
For example, saving KSh 1,000 monthly gives you KSh 12,000 over one year, excluding any interest earned.
As your financial position improves, gradually increase the amount.
Ideally, work towards building savings that can cover several months of essential living expenses. The appropriate target depends on your income stability, household responsibilities and other financial commitments.
If your debts are extremely expensive, prioritise urgent repayments while setting aside a modest emergency reserve where possible. This can help prevent every unexpected expense from becoming another loan application.
Keep emergency savings separate from money intended for daily spending.
- Avoid Borrowing to Maintain a Lifestyle You Cannot Afford
Another major cause of the debt cycle is spending beyond one’s income.
Some people borrow to maintain a lifestyle that their current earnings cannot support. They take loans to finance expensive holidays, celebrations, electronic gadgets, clothing and other non-essential purchases.
The problem is that these expenses do not necessarily generate income, yet the debt remains payable long after the money has been spent.
If your salary cannot comfortably support a particular lifestyle, consider making adjustments rather than relying on loans.
For instance, if you cannot afford a new phone without borrowing, consider keeping your current device until you have saved enough to purchase another one.
Similarly, avoid taking loans to finance social events or impress friends and relatives.
Your financial decisions should be based on your income and long-term priorities rather than pressure from other people.
- Review Your Borrowing Habits Before Taking Another Loan
Before applying for any future loan, establish whether you genuinely need it and whether you can afford the repayments.
Start by identifying the purpose of the loan. Is it intended to finance an investment, support an income-generating activity, address an emergency or fund consumption?
Next, calculate the total cost of borrowing. Do not focus only on the amount you will receive or the monthly instalment.
Check the interest rate, processing fees, insurance charges, penalties and repayment period.
Also consider how the new instalment will affect your existing financial commitments.
If you are already struggling to repay your current loans, taking another facility may worsen the situation.
For SACCO members, it is important to understand the difference between deposits, share capital and loan eligibility. Having savings or qualifying for a loan does not necessarily mean that borrowing is the best financial decision.
A loan should support a well-considered financial objective, not become a permanent source of money for meeting monthly expenses.
What Should You Do If You Can No Longer Afford Your Loan Repayments?
If your debts have become unmanageable, do not wait until lenders begin taking recovery action.
Contact each lender and explain your circumstances. Request updated loan statements and ask about available repayment arrangements.
If you have received demand letters, legal notices or communication involving guarantors, take the matter seriously. Seek clarification and, where necessary, obtain independent legal or financial advice.
For SACCO loans, understand the terms of your loan agreement and the obligations of your guarantors. A default may affect other members who guaranteed your borrowing, depending on the applicable agreements and recovery procedures.
If you dispute the amount owed, request a breakdown of the outstanding balance, interest and charges.
You should also be cautious about individuals or companies promising to erase your debts for an upfront fee. Verify any debt management or financial advisory service before sharing personal or financial information.
There is no quick solution that automatically clears legitimate loan obligations. The most reliable approach is to establish the actual debt, negotiate where possible and follow a realistic repayment plan.
A Practical Example of How to Break the Debt Cycle
Consider a person earning KSh 70,000 monthly who has accumulated KSh 300,000 in different loans.
The borrower spends KSh 35,000 on essential expenses and is required to pay KSh 25,000 towards monthly loan instalments. This leaves KSh 10,000 for other expenses and unexpected needs.
Whenever an emergency arises, the borrower takes another mobile loan. The new facility increases the monthly financial burden, making it even harder to meet existing obligations.
To break the cycle, the borrower first lists all outstanding loans and requests updated statements.
After reviewing the budget, the borrower identifies KSh 3,000 in discretionary expenses that can be reduced. The borrower also negotiates with one lender to restructure a facility into more manageable instalments.
In addition, the borrower takes on a small freelance assignment that generates an extra KSh 5,000 monthly.
Instead of using the additional money for lifestyle spending, the borrower directs it towards the most expensive outstanding debt.
The borrower also begins saving a small amount for emergencies to reduce the likelihood of taking another loan.
This approach does not eliminate the debt immediately. However, it creates a clear repayment strategy and reduces dependence on fresh borrowing.
The figures are illustrative, and actual repayment arrangements will depend on the lender, loan agreements and the borrower’s financial position.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. Email: [email protected]
