I am employed but all my salary is being swallowed by Sacco loans. I now have a net salary of Sh. 13,000 and I have two Sacco loans BOSA and FOSA of which I have defaulted on the latter.

I have thought of restructuring my BOSA to clear FOSA, but I was told that in order for me to do that, I will have to survive with Sh. 3,000 for the next 8 years as the restructuring will affect my pay slip to that effect and also break the 1/3 salary net rule.

I have no other investment or alternative, and if I say yes to the above, I will repay that loan by almost my retirement time. Kindly advice me as I have put my guarantors at risk of being deducted their salary every month.

Dominic Karanja, a financial and investments consultant.

You need to have a plan for managing your money, achieving your financial goals, and securing your financial future.

Personal financial goals can be categorized into short-term goals that take up to 3 years to accomplish, Intermediate term goals that take three to five years to achieve and long-term goals that take more than five years to accomplish.

Right now, payment of your debts, setting up of an emergency fund and having short-term investments should form part of your short-term financial goals. You need to take stock of your current financial situation by evaluating your sources of income, your expenses, your assets, and your financial obligations.

You should strive to ensure that you assets are higher than your financial obligations and your sources of income are higher than your expenses. Budgeting is a crucial component of managing your finances effectively and achieving your financial goals.

Make sure that that you consider all your sources of income, and all expenses when preparing your budget. You need to build an emergency fund that is worth 6 months of your living expenses.

Debt management is a crucial component of personal financial planning, and you should always have a plan on how to manage and reduce your debts. Debts should be for productive purposes only.

You should consider the purpose of the loan, loan terms and conditions, interest rate, repayment period and the loan instalments before you take a loan.

Responsible borrowing requires that you take loans that will eventually improve your financial situation and your intention should always be to ensure that you adhere to the loan terms and conditions.

Its unfortunate that you have defaulted in one of your loans because loan delinquency has consequences that includes negative listing with the credit reference bureau (CRB), recovery of the loan balance from your savings, recovery of the defaulted loan amount from your guarantors, auctioning of the pledged assets, garnishee order, civil case among others.

Negative listing with CRB lower your credit score and it affects your financial standing since you will always be considered a high-risk customer by financial institutions. When somebody guarantees your loan, he/she is obligated to make sure that the loan is paid should you default on your loan repayments.

When your loan instalments are deducted from other people’s saving it affects the way you relate with your friends, it affects your reputation, you may not get loan guarantors in future, and they can lodge a case at the Co-operative Tribunal.

Under the “one third (1/3) rule” the net amount an employee must retain after all deductions cannot be less than one-third of his/her salary but It’s evident that you have already breached the threshold though you have not indicated your basic income.

It is recommended that you commit at most a third of your net income towards loan repayments so that you don’t struggle to meet your loan obligations.

Since you have indicated that you don’t have any investment, you can take stock of your assets and see whether there is any asset you can dispose of with an aim of using the proceedings to pay off your loans.

If asset disposal route is not feasible, then loan consolidation might be one your options to rescue you from your current financial situation though you have indicated that you might not afford the loan deductions.

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Loan consolidation is a financial strategy that involves combining multiple loans into a new loan. FOSA loans are short term, and they are more expensive compared to the BOSA loans. To avoid default, you need to consider consolidating the loans into one BOSA loan, but you need to negotiate with your SACCO a more manageable repayment plan.

If restructuring the BOSA loan to clear FOSA is not feasible, consider prioritizing which debts to pay off first. To manage your loan repayment, you will need to review your monthly expenses and identify areas you can reduce your spending.

Consider having additional sources of income so that you can supplement your current salary.  In the short term you can reduce you monthly SACCO savings and use that amount together with your SACCO dividends to reduce your loan balance but once your financial situation improves you should make it a habit of saving regularly , avoid borrowing for consumption purposes and you should capitalize your SACCO dividends to deposits to help increase your borrowing power and earning of high dividends in the subsequent years.

I would recommend that you seek the assistance of a financial advisor to guide you through your current financial situation.

A version of this feature was previously published in the Saturday Magazine. The Saturday Magazine is a publication of the Nation Media Group.