Your money questions answered

A small businessman smashes a giant swinging iron ball with a word DEBT on it using a hammer [Courtesy]

Q: ‘Needy’ relatives ruining our financial health

I just got married and we are already having problems with my husband due to money issues and spending on our relatives. For example, he is always bailing out his deadbeat brother from financial mishaps, paying school fees for a dozen cousins, and each month he sends a heft allowance to his parents. I want us to build our family first but he keeps giving away money before we even have a discussion about it. What can I do?

Virginia, Mombasa.

A partner being too generous or stingy towards the extended family can be a cause of marital tension. In your case, you are becoming resentful of your partner. Understandably, you want the money that’s going to relatives and friends to be used to address the immediate family’s financial needs and goals. You need to have a serious discussion with your husband. Like every other major category of your finances as a couple, discuss your financial responsibilities towards extended family. Make sure you’re on the same page about prioritising your nuclear family’s financial needs. Allocate an amount for this need. Have a policy in place (such as seeking each other’s consent) before spending major money on friends or relatives.

Bonus tip: The rule of the thumb usually is that when lending relatives and friends money, be sure that it is money that you can afford to lose. And when it is a large amount, have a lawyer draw up a legally binding document. They shouldn’t hesitate to sign it if they had the intention to repay.

How can I save and still pay off debt?

Q: If the pandemic has taught me anything, it is that I need to have savings. Problem is I also have lots of debt. What can I do?

Mark, Nakuru

One of the biggest hindrances to saving for your future is debt. When you have to direct a chunk of your income towards clearing debt, you might have very little or nothing left to put in your savings account. To be able to comfortably pay yourself every month, you should figure out the best strategy to clear your debts. However, don’t prioritise debt over savings – this strategy can backfire on you and leave you in even more debt. Instead, figure out what portion of your income you can save while also paying down your debts.

Consider using the snowball method to pay debts. With this strategy, you list all your debts – from smallest to largest. Ignore interest rates and throw everything you can at the smallest debt. Meanwhile, you can make minimum payments on the big debts which are accruing interest. Once you’ve paid off the smallest debt, move on to the next one and the next one.

Before you know it, you will be directing all the funds you were using on the smaller debts to clear just one big debt. And soon enough, you’ll be debt free. After paying off your debts, you can direct all that money into paying yourself.

Is it wise to borrow one big loan to pay off smaller loans?

Q: I have many debts and I am very tempted to get one big loan that will pay off everything. But I want to know if this will be digging myself into a deeper hole.

Norman, Kisumu

Having multiple debts can be psychologically overwhelming. This is why many people resort to debt consolidation. Basically, debt consolidation is where you take a loan to pay other smaller loans. Having only one debt, instead of many, to pay off can significantly ease the psychological pressure. But while consolidating your debts can bring short term relief, in the long term it could mean paying more in interest charges.

Solution: Before taking a loan to consolidate your debt, do some calculations. There are some instances where this strategy works- such as when paying off a high-interest credit card debt. If you’re struggling to make payments on a high-interest credit card, taking a loan personal loan with relatively low interest rates and longer repayment term might be a good idea. But in most situations, it is better to pay each debt off without the help of debt consolidation facilities.

Am I liable for my spouse’s debt?

Q: I learnt that my husband was in debt after we got married in a lavish wedding three years ago in Mombasa. This was after seeing some demand letters from three different banks and court auction notices.

My main worry now is whether the banks will also rope me – as his wife - into his debts which could mean auctioning off a plot that I recently bought with my chama money.

Wairimu, Nairobi

It is no longer possible to drag a spouse into a property debt acquired before walking down the aisle. The Matrimonial Property Act says that spouses are not solely liable - by reason of marriage – to personal property debts incurred by their partners before exchanging vows.

Provisions of the Matrimonial Property Act exclusively bars ‘cunning’ spouses from dragging ‘honest’ husbands/wives into paying up loans they never signed for. “Any liability incurred by a spouse before marriage and relating to property shall after marriage remain the liability of the one who acquired it,” Section 10 of the Matrimonial Property Act says.

However, liabilities incurred on matrimonial property shall be shared equally among spouses, unless they agree otherwise.

The law further states that spouses are also at liberty to share equally property liabilities for the benefit of the marriage.

The law provides for equal status of spouses that a married woman has similar rights as a man to acquire, administer control and dispose of property.

The married women can even legally acquire, administer, control and dispose of property, enter into contracts, sue and be sued in their own names.