Search for Savings & Loans
What Is Debt Consolidation and How It Works in Kenya
What Is Debt Consolidation and How It Works in Kenya
See The Best Loans Available in Kenya Today
Personal Loans

What Is Debt Consolidation and How It Works in Kenya

Doris Kendi
October 20, 2021

Would you rather deal with one angry bulldog or ten angry chihuahuas that are jumping and biting you from every direction?

With one bulldog, at least you can draw up a strategy and figure a way to calm it down and tame it. Taming ten angry chihuahuas, on the other hand, is not easy. It is possible, but it is not easy. 

This is the same case with your debts and liabilities. For example, you might have a loan from your local bank, SACCO loan, HELB, rent arrears, as well as a ‘Ka-Mshwari’ mobile loan. 

It is now the end of the month, and all these lenders have come knocking. However, your income this month is not enough to cover all of them at once. So what to do?

What if I told you there is an option of paying all this at a go? Yes! As crazy as it sounds, this is possible. 

No, it is not magic! It is known as a debt consolidation loan. 

With more favorable terms, like lower interest rates or lower monthly payments, you can use a debt consolidation loan as a tool to deal with the headache of servicing your loans and liabilities. 

Sure, it does not mean you are now debt-free. However, it is a more efficient way to deal with your debt issues without getting depressed from all the calls coming in from the creditors. 

So, let's find out what exactly is a debt consolidation loan and what options you might have. 

What Is a Debt Consolidation Loan?

The term consolidate is derived from the Latin word ‘consolidatus,’ which means "to combine into one body." Therefore, in a simple language, debt consolidation means taking one loan to pay off all the other individual debts. 

The idea is to get a single lump sum loan to pay off all the other high-interest loans. This larger loan usually has more favorable terms - otherwise, it wouldn’t be interesting at all, right? 

Just like taming a larger dog, a debt consolidation loan gives room to wiggle and make a better plan on how you will repay your debts without having to remember and keep track of different debts. 

How Does Debt Consolidation Work?

As mentioned above, the idea is to get one big loan to cover all your smaller loans. This way, you only have to make one payment a month instead of several. 

So, once you decide this is a route you want to take, you first need to find a bank or a lender who offers this kind of service. The application process and all the due diligence vary depending on the lender. However, it usually goes something like this:

  • You fill your application
  • The lender then does a background check on you - checks your credit status and your income against your debt ratio (they will request you for a variety of documentation). 
  • The lender qualifies or disqualifies you for a debt consolidation loan. 

Once approved, the lender will either contact and pay off your previous lenders directly or make available the cash for you to deal with the earlier lenders yourself. 

Types of Debt Consolidation Loan

Like regular loans, there are two main types of debt consolidation loans:

  • Secured loans. This is a loan where the lender requires some kind of collateral for the loan. The collateral can be the borrower’s assets such as a car, title deed to a piece of land,  etc. 
  • Unsecured loans. This type of consolidation loan is not backed by any of the borrower’s assets. As such, it is tough to get, and in most cases, it attracts very high interest rates.   

Key Things to Keep In Mind When Considering Debt Consolidation

At first glance, the idea of not having a couple of lenders on your back every month can be very enticing. However, there are a few things you need to know before you consider this option. 

1. It is also a debt.

A debt consolidation loan does not erase your previous debts. It may result in lower monthly repayment amounts, but you are still in debt. If anything, it may make the amount you need to pay larger and push you further into debt. - The service has a fee to consolidate the debts, which is added to the initial amount. 

2. All your liabilities are transferred to one creditor.

In some instances, the risks may be higher than the benefits. At the end of the day, you might find that it is easier to deal with the small debts individually than to consolidate them. 

For example, suppose you get a secured debt consolidation loan and use your car as collateral. In that case, there is a chance you might lose it if you default with your repayments—that is why it is not recommended to consolidate unsecured loans with a secured consolidation loan. 

3. It may not always be a good idea.

It may not be a good idea to apply for a debt consolidation loan if you are only running away from your responsibilities. Without a proper plan on how to dig yourself out of the debt avalanche, you will only add to your burdens with a debt consolidation loan.

So, before you decide that this is a good option for you, first lay down a proper plan on how to approach the debt. 

Advantages and Disadvantages of Debt Consolidation

Although debt consolidation might not be for everyone, knowing the advantages and disadvantages is crucial. It will allow you to weigh your options better. So, here are the pros and cons of using a debt consolidation loan to offset your smaller debts. 


  • If you are in a financial fix, it might help lower your overall monthly payment and reduce your financial burden in the short term. 
  • Debt consolidation makes it easier to manage your liabilities as a single unit.
  • It can benefit your credit standing as it can help lower the expected monthly repayment amounts.
  • It reduces your stress levels because you will not be getting dozens of calls from different debt collectors.


  • Debt consolidation is not debt elimination.
  • You may end up paying a lot more in the long run. Although you may get a more extended repayment period, lower interests rates are not always guaranteed. Also, the loan transfer fees are not always predictable. 
  • A longer repayment period is most likely going to result in higher overall interest charges. 
  • You may need to pledge a valuable personal asset as collateral, e.g., your home. 
  • Debt consolidation does not guarantee that you will be able to pay a bigger debt when you cannot pay smaller ones. 


Debt consolidation can come in handy to save a dire situation. For example, it can help roll together credit card debts, mobile loans, and other high interests loans into a single lower-interest loan that is more manageable. It is also an excellent way to keep them calls from ruining your peaceful sleep. ‘

However, debt consolidation is not for everyone. In the long run, it might be more expensive for you to service this single loan than if you had toughened out and dealt with the small loans as they were.

So, before you choose to go this route, ensure that you have carefully considered all your options.

Doris is a finance professional, freelance writer and SEO expert. She has experience helping businesses of all sizes create content that helps improve their site quality and increase their online traffic. She is a personal finance and wealth creation enthusiast and a frequent contributor to Money254. Visit Doris' personal website to learn more about her work.

Download the new Money254 App and don’t miss out on the next article.

Join 1.5M Kenyans using Money254 to find better loans, savings accounts, and money tips today.
Get it on Google Play

Learn more about Personal Loans available in Kenya on Money254

Money 254 is a new platform focused on helping you make more out of the money you have. We've created a simple, fast and secure way to find and compare financial products that best match your needs. All of the information shown is from products available at established financial institutions that our team of experts has tirelessly collected.

Instantly search loan products from established providers in Kenya and compare on the terms that matter most to you.
Find the best Personal Loans for me

Don't miss another article - download the new Money254 App Today

Get it on Google Play

Sign up for our newsletter and get weekly money tips to your inbox.

Get updates from the Money254 team on financial news and new Money254 features.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.