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7 Things You Can do to Free Yourself from Short-Term Loans Forever
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7 Things You Can do to Free Yourself from Short-Term Loans Forever

Medical situations, delayed paychecks, and unforeseen needs might all cause you to take out short-term loans. Is getting into debt, however, the best option? Even though short-term loans can help you get out of financial difficulty, they can have a detrimental impact on your overall finances, so you should learn to live without them.

This article will explore seven possible ways to free yourself from short-term loans forever and some cheaper alternatives to short-term debt.

Read Also: What is Consumer Debt, and Why is it Considered Bad? 

What are Short-term Loans in Kenya?

Short-term loans are temporary borrowings undertaken to fulfill immediate momentary requirements. They are often unsecured and have a repayment period of less than one year. Financial institutions such as banks and SACCOs, microfinance institutions, credit unions, and digital lenders offer different types of short-term loans.

Short-term loans are accessible, have high-interest rates, different tenures of one to twelve months, and given their unsecured nature; you can only borrow small amounts. 

Read Also: 8 Easy Ways to Pay Off Your Debt Faster 

Seven ways to Free Yourself from Short-term Loans

Ignoring or not being aware of some personal finance principles is one reason you will likely find yourself turning to short-term debts. You can break the cycle by adopting these seven strategies:

Track Your Spending

One of the reasons you are always running out of money is that you don't know where your money went. You know you spent Ksh80,000 last month, but you can only account for what you spent on rent. 

When you don’t know where your money is going, you won't be able to prevent yourself from going beyond your budget. And when you constantly do that, you'll find yourself in debt.

The best way to start tracking your expenses is to record everything. Write down how you spent every shilling; after a month, you'll know where your money has been going. You will see where you have been overspending and where you've been wasting money. This can help you break habits that leave you with no option but to turn to short-term loans every time you run a budget deficit.

You don't have to record your spending on a book or walk with pen and paper everywhere you go. There are a variety of free apps on the Play Store and App Store that you can download and track your spendings write from your smartphone.

Read Also: 8 Amazing Benefits of Tracking Your Spending 

Separate Needs from Wants

Once you know where your money is going, it's time to cut expenses so that you never run out of money. To achieve that, you'll have to separate your needs from wants, then create a budget. Needs will cover the basic expenses that you can't function without. This will be housing, food, health, transportation, etc. Wants will cover discretionary spending like clothes, eating out, entertainment, etc.

Once you have separated your needs and wants, it's time to adjust your spending habits. Find out where you've been overspending and find ways to cut costs. Suppose you are going out a lot and spending frivolously on entertainment; cut on that end. If you realise you are paying a lot for housing, cut on that front. 

Now, to ensure you don't overspend unknowingly, you must create a budget and stick to it. A budget will put you in a place where you live within your means, in control of your finances, and free from loans. Additionally, it will help you focus on your goals by helping you to develop a saving culture. 

One budgeting technique that can help you separate needs from wants and help you save, is the 50/30/20 budgeting rule.

Read Also: Money & Me: Testing 50/30/20 Budgeting Rule With My Ksh50K Salary 

Have Solid Emergency Savings 

Financial emergencies are the main reasons you will likely turn to short-term loans. This is why you should be prepared for them by building a rainy day fund. This is money you can turn to when you have an emergency, lose your income, or have unexpected expenses not covered in your budget.

A solid emergency fund should be able to cover three to six months' worth of expenses. This won't only mean you will avoid going into debt, but you will also maintain your lifestyle. 

Building an emergency fund can take time, but it's your best bet to avoid debt. Start by opening a savings account and deposit a few thousands every month. You can also save your rainy day funds in other High yield-saving instruments like money market funds (MMFs). The money should be put in readily accessible and liquid investments.

Read Also: Easy Steps to Create an Emergency Fund in 100 Day

Develop Smart Spending Habits

With short-term loans easily accessible, it's easy to find yourself taking a digital or overdraft loan to feed your spending habits. Developing smart spending habits requires being intentional with how you spend money. While it might seem top-level, it isn't. These four simple tricks can help you:

Plan your Purchase: Instead of making impulsive buying decisions, take time to plan. Whether you want to upgrade your wardrobe or buy your child a new bike, make plans first. Don't just withdraw money from your account and buy it. Instead, save for it for two or three months.

Bargain: This doesn't mean you have to argue with every seller, but rather, shop around. Compare prices and buy from where you get the best deal. In this age of online shopping, don't buy from the first merchant you see on your timeline.

Shop with a List: Going to a supermarket for your monthly shopping? Write down what you plan to buy and stick to that list. Otherwise, you will be tempted to buy all the Swiss chocolates.

Get Cheaper Hobbies: You might enjoy going for road trips every weekend, but that's costing you money and forcing you into debt; it's time to consider other less costly hobbies. Maybe join a local hiking group?

Read Also: 5 Daily Habits To Improve Your Finances

Pay your Bills on Time

Delaying to pay your bills on time or meeting your other financial obligations can cause you to use the money for different reasons. When you spend your rent or your child's school fees on buying new tires for your car when schools open or your landlord comes knocking, you'll only have one option— take out short-term debt. 

Delaying bill payments can prevent you from sticking to your budget and meeting your financial goals. One of the best ways to ensure you are always on time with your bills is to automate your finances, pay them in advance, or set a specific date on your calendar and use that day to pay all your bills.

Delaying bill payments can cost you when you're charged late fees or penalised. 

Read Also: How to Pay Your Bills After Loss of Employment

Diversify your Income Sources 

Diversifying your income involves developing different sources of income so that you don't rely on a single source like a salary or your business. When you lose the income you were dependent on, it can cause you to turn to short-term debts to finance your everyday expenses till you find a new source of income.

When you have a variety of income sources, you can stay self-sufficient and use income from your other channels to finance your budget. While you might have to cut expenses and alter your lifestyle, you won't need to go into debt. Diversifying your income can also help you avoid financial instability, save more, and achieve your financial goals in time.

The best ways to diversify your income are to invest in income-generating investments, take up a second job if you have time, start a freelancing or consulting business, and use your other skills to generate money. 

Read Also: 7 Ideas to Diversify Your Sources of Income

Get Adequate Insurance 

Insurance is a lifesaver; it can come in handy when you have significant expenses that can drive you to debt. It is the best way to protect yourself, your family, and your assets from losses. Insurance can give you peace of mind since you have someone (your insurer) to whom you can transfer your losses. 

Being adequately insured doesn't mean you have to buy all types of insurance. That could be a money waste. Rather it involves buying vital covers you can do without, and they include:

  1. Health insurance to protect you from high medical cost  
  2. Disability and income protection insurance to replace your lost income
  3. Education insurance to ensure your child always stays in school
  4. Homeowners or renters insurance to cover your belongings from theft and natural disasters 
  5. Auto insurance if you drive
  6. Life insurance policy to protect your dependents from financial difficulties 

Read Also: Money and Me: Insurance, a True Life Saver

Find Cheaper Short-term Loans Alternatives 

Life can come at you first; when you are not prepared or run out of options, taking loans can be your last resort. But since you know some short-term loan drawbacks like high interest and their predatory terms, it's better to consider other alternatives. Before you download a mobile app loan to take a digital loan, here are something you can try:

  • Get a salary advance from your employer - Talk to your boss and see if they can pay you before the end of the month. But ensure to avoid making this a habit.
  • Get short-term loans from family and friends - Talk to your close ones and see if they can lend you money to meet your expenses. They'll likely charge you no interest and offer better terms. Ensure you keep your end of the deal.
  • Get secured loans - if you have an asset like a car, house, or land, you can use it as collateral to get personal loans. These loans often have friendlier terms, and you can bargain the interest. 
  • Get someone to cosign a loan for you - If you don't have any assets you can use to get secured loans, ask a closed one to be your guarantor.

Read Also: 14 Common Money Worries and How to Deal with Them


Short-term loans' most significant effect is that they can prevent you from saving. You won't have time to think of the future when you always spend a portion of your income to service these loans. 

Also, given the short tenure, you can easily default on them. Defaulting can lower your creditworthiness and prevent you from accessing credit and good loans when you need them. With that in mind, it is vital that you take steps to prevent yourself from having to take a loan every time you are in a fix.

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

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