Borrowing for school fees or a medical bill

Name the difference honestly

A loan for stock repays itself out of the sale. A loan for school fees, a hospital bill, a funeral or a wedding does not: every shilling of it comes out of income you already have, which is income that was already doing something else.

That is not an argument against borrowing for these things. Education and health are among the few reasons worth taking on a debt for. It is an argument for sizing it as if it were coming out of your own pocket every month — because it is.

Ask what else is available first

Before you borrow, ask the school whether fees can be paid in instalments, whether there is a bursary, and what the real deadline is as opposed to the printed one. Many schools will take a plan from a parent who comes early and none will from a parent who comes late.

For a hospital bill, ask about the payment plan, about any waiver, and about what the insurance you may already have through a SACCOS or an employer actually covers. An hour of asking often removes a third of the amount you were about to borrow.

If you are in a VICOBA or a SACCOS, that is the first place to look. Member loans for fees are common, the rate is usually the lowest you will find, and the money is partly your own.

Borrow the gap, not the bill

Put in what you have first, then borrow only what is missing. It is a small discipline that people skip when they are worried, and on a 600,000 bill with 200,000 in hand it saves six months of interest on money you did not need.

And keep the term short. A twelve-month loan for a bill that comes again next year means the second bill arrives while the first is still being paid — which is how a single hard term becomes a permanent condition.

Be careful about what you pledge

Because this loan produces no income, a missed payment cannot be fixed by working harder at the thing the loan bought. That makes the security more likely to be called than on a business loan — so pledging the house, or the machine the household eats from, is a heavier decision here than anywhere else.

Plan for the next one while you pay this one

School fees are not a surprise. They arrive on the same dates every year, and the only real escape from borrowing for them is a small amount set aside every month from the month after this loan clears.

A quarter of the fee saved is a quarter you do not borrow, and it compounds: every year you do that, the loan gets smaller and the interest with it, until one year there is no loan at all.