There’s a common belief that debt is bad. But truthfully, it’s not the debt itself that’s the problem; It’s not the idea of debt that makes it bad. It’s the reason and use of the debt that often leads people into trouble.
Most of the debt people are dealing with today comes from consumer loans; quick, easy, and often emotionally driven. But even that isn’t the biggest culprit. The real issue is the ignorance surrounding affordability and the true cost of credit. The ignorance around affordability.
𝐓𝐡𝐞 𝐇𝐢𝐝𝐝𝐞𝐧 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐂𝐨𝐧𝐯𝐞𝐧𝐢𝐞𝐧𝐜𝐞
It’s understandable to take a consumer loan, especially in moments of emergency. Life happens. But if the cost of that loan ends up being ten times its actual value, then what seemed like relief becomes a trap not a solution.
Many loans in the market today come with hidden costs i.e, high interest rates, late payment penalties, insurance charges, and account maintenance fees. These small print costs quietly erode financial health. By the time repayment begins, the borrower realizes that the loan’s cost far outweighs the benefit.
𝐓𝐡𝐞 𝐒𝐚𝐯𝐢𝐧𝐠𝐬 𝐆𝐚𝐩
We are living in an era where saving habits are weak. For most people, savings are reactive, not consistent.
Because of this, more affordable credit options such as SACCO loans remain out of reach for many.
SACCOs typically require consistent savings and membership tenure, but with irregular saving behavior, people miss out on these cheaper and more flexible lending avenues.
𝐓𝐡𝐞 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐑𝐞𝐚𝐥𝐢𝐭𝐲
Formal institutions like banks have structured lending models. To qualify, you often need a salary account or pay slip. That automatically locks out a large segment of small business owners and informal sector earners.
Yet, these individuals are not necessarily broke, many run businesses that record strong revenues but poor cash flows.
And in lending, cash flow is king. It tells whether a borrower can meet loan repayments sustainably. Without solid cash flow management, even profitable businesses are seen as risky borrowers.
𝐓𝐡𝐞 𝐑𝐞𝐚𝐥 𝐏𝐫𝐨𝐛𝐥𝐞𝐦: Loan 𝐀𝐟𝐟𝐨𝐫𝐝𝐚𝐛𝐢𝐥𝐢𝐭𝐲
Taking loans, in itself is not bad. Loans can be powerful tools for growth whether to build a business, handle an emergency, or invest in an asset.
However, what makes loans “bad” is the ignorance of affordability; the failure to calculate what a loan truly costs, how long it will take to repay, and whether it aligns with one’s income and cash flow.
Financial literacy is not just about knowing how to borrow; it’s about understanding when to borrow, how much, and why. We don’t need to demonize debt.
We need to educate borrowers on the affordability, structure, and impact of the loans they take. Debt becomes dangerous only when it’s taken blindly. When used wisely, it can be a bridge not a burden.
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Rhina Namsia is the founder and chief executive officer of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory.
