Escaping the Debt Trap: How to Pay Off High-Interest Debt in Nigeria

As established in previous weeks, debt is deceptive. It's like pepper soup—everything seems fine until it suddenly hits you, leaving you sweating and wondering how things got so hot. One moment you’re borrowing N50,000 from a microfinance lender “just to hold body.” The next, you’re dodging calls because that loan, with interest, has grown larger than your monthly salary. 

But debt doesn’t have to be a villain. With the right strategy, it can be an ally. In fact, managing debt well is like playing chess—you must think a few moves ahead.  

This article is your guide to winning the game. Let’s explore how to escape high-interest debt and come out stronger on the other side.

The Snowball vs. Avalanche Approach: Pick Your Debt Game Plan 

When it comes to paying off debt, you’ve got two main strategies. Think of them like workout plans—choose the one that fits your rhythm. 

• The Snowball Method: Start by paying off your smallest debts first, ignoring the interest rates. The quick wins boost your morale and give you the momentum to tackle bigger debts. It’s like starting a diet by cutting out soda—small but satisfying progress. 

• The Avalanche Method: This approach takes the opposite route. You focus on the debt with the highest interest rate first. Though it’s slower to see progress, it saves you more money in the long run—just like enduring that long, tedious gym workout for better results down the road. 

Example: Snowball Method 

Imagine you have three loans: 

• Loan 1: N50,000 at 15% interest 

• Loan 2: N150,000 at 20% interest 

• Loan 3: N300,000 at 25% interest 

The Snowball Method suggests you ignore the interest rates and focus on paying off the smallest debt first to build momentum. 

Step-by-step repayment: 

1. Pay off Loan 1 first, even though it has the lowest interest rate. Once it’s cleared, you free up the money you were using on that loan. 
2. Next, use that extra cash to target Loan 2. 
3. Finally, tackle Loan 3, the largest one. 

Even though this method may cost you more in interest over time, it gives you psychological wins that help you stay motivated. 

Example: Avalanche Method 

In this method, you pay off loans based on their interest rates, starting with the highest. 

Using the same loans: 

• Loan 1: N50,000 at 15% 

• Loan 2: N150,000 at 20% 

• Loan 3: N300,000 at 25% 

Step-by-step repayment: 

1. Focus on Loan 3 (25%) first since it has the highest interest rate. 
2. Once Loan 3 is paid off, move to Loan 2 (20%). 
3. Finally, clear Loan 1 (15%), which has the lowest interest rate. 

The Avalanche Method saves you more money in the long run because it minimizes the total interest paid. But it requires discipline—results can feel slow at first, especially if the largest debt has the highest interest rate.  

Quick Comparison: Snowball vs. Avalanche 

Method	Snowball	Avalanche
Focus	Smallest debt first	Highest interest rate first
Pros	Boosts motivation with quick wins	Saves the most money long-term
Cons	Costs more in total interest paid	Can feel slow initially

In our current economy—where interest rates are high, and incomes can be tight—the Avalanche method makes the most sense if you're trying to reduce overall financial strain. However, if you need morale boosts along the way, the Snowball method will give you that psychological edge. 

The takeaway? Choose the approach that aligns with your personality and financial situation. The best method is the one you can stick to. Just start—whether you're rolling a snowball or triggering an avalanche, movement is what matters. 

Pick whichever method makes sense for you. The important thing is to start. Delay only makes things harder. 

Understanding Microfinance Loans and Payday Traps 

Some loans promise quick relief but come with sneaky traps. Microfinance lenders, payday loans, and digital lending apps are all too eager to give you money, but their high-interest rates can leave you in a vicious cycle. You borrow a little, miss a payment or two, and soon your debt doubles, leaving you worse off than when you started. 

That said, the idea isn’t to avoid these loans altogether—sometimes you genuinely need a quick cash injection. But the key is paying them off as fast as possible. If not, you risk becoming stuck in a cycle of high-interest debt. 

Debt Consolidation and Refinancing: Simplify the Game 

Picture this: You owe four people N10,000 each, all expecting repayment at the same time. Stressful, right? Debt consolidation combines all these smaller loans into one bigger loan, often with a lower interest rate—making it easier to manage. It’s like having one keke driver take you across multiple stops instead of haggling with several along the way. 

Many Nigerian banks, like Access Bank and Zenith Bank, offer personal loans or salary advances you can use to consolidate debt. And if your current loan has interest rates that feel like highway robbery, refinancing may help you swap it for one with better terms. 

Budgeting Smart in Nigeria: Flexibility is Key 

The cost of living in Nigeria can be unpredictable, so budgeting feels like an ongoing balancing act. Start with an emergency fund, it’s non-negotiable. Life is full of surprises, from hospital bills to fuel shortages, and having a buffer will prevent you from sliding back into debt. 

Beyond that, prioritise essential expenses and track your spending patterns. Are you losing money on small, frequent purchases (say, shawarma twice a week)? Identify these patterns and adjust. A good budget doesn’t just cut costs, it aligns with your priorities without stripping away joy. 

Community Support: The Power of Ajo and Cooperatives 

One of Nigeria’s hidden financial gems is ajo or esusu—community-based savings groups where members contribute money regularly, and each member takes turns receiving the lump sum. These groups promote discipline, offer zero-interest payouts, and help members avoid costly loans. 

Rather than being a trap, ajo is a lifeline. It’s a way to stay out of debt, save for future goals, or even pay down existing debt. The beauty of these groups is the shared accountability—they keep you consistent, especially when it’s tempting to skip savings. In many communities, cooperatives operate the same way, allowing members to access loans at friendly terms without predatory interest rates. 

The lesson? Use these community systems to your advantage. Whether it’s for saving or accessing low-interest funds, ajo and cooperatives can be powerful tools for managing finances and staying out of debt traps. 

Practical Steps to Pay Off Debt (And Stay Out of It) 

1. Track Your Debt: List everything you owe, including interest rates and due dates. 
2. Choose a Repayment Method: Snowball or avalanche—stick to one and stay consistent. 
3. Talk to Lenders: Don’t be afraid to negotiate for better terms or an extended payment plan. 
4. Consolidate or Refinance: Simplify your payments with a single loan if it makes financial sense. 
5. Lean on Community Support: Use ajo or cooperatives to stay on track or avoid high-interest loans. 

The Takeaway: Debt as a Tool, not a Burden 

Debt doesn’t have to be a monster that keeps you awake at night. It can be a tool—a ladder rather than a weight. The key is to manage it well and avoid the traps that turn it into a burden. Whether you’re leveraging ajo to stay afloat, consolidating your loans, or budgeting for unexpected expenses, you have the power to control your debt. 

Debt will always exist. The question is whether it controls you or you control it. The choice is in your hands: Will it be a rope that ties you down or the ladder that helps you rise?