Debt is that cancer, which if not cured, curbs all your present and future savings. Debt is nothing but borrowed finance, which helps you to purchase things that you cannot afford. It fulfils those unachieved dreams, and satisfies those unfinished wants that one craves.
So, is debt really that bad? Let us see why.
Debt is a costly affair: Yeah, like all good things that come with a price tag, debt is also costly. Except for debt given out of love and affection (which also has emotional costs), all the debts have interest payable on them. This interest is higher as long as the tenure of such debt. For instance, if you take a loan to buy a car, you actually end up paying a premium of a minimum of 20 per cent to 30 per cent of the total cost of the vehicle. Suddenly, those Ubers don’t sound that costly now, do they?!
Debt hurts your savings: Money saved is money earned. Saved money is interest and emotional-free which you can use without paying any Equated Monthly Instalment or EMIs. Debt money gets the EMI monkey on your back, which eats up all your savings opportunities. Therefore, instead of purchasing anything on loan, if possible save money and buy things, which is more convenient and cost-friendly besides being stress-free, too.
Debts can go bad: Imagine those hefty credit card bills, the car EMI and a loved one’s birthday — all of this in one month. That’s not a pleasant scenario, eh? Debt needs proper planning and timely payments, otherwise it will impact your credibility which may result in higher interest costs or loan rejections.
Debt demands heavy self-control: It is just like that old saying, once in debt always in debt. We often fall into a situation where we will then require one debt to clear the other and the cycle goes on and on. Unless we have good self-control and patience, the debt can be like the huge fat belly, which usually will not yield to any diets.
Let’s understand that debt is not entirely bad. However, that is if you as a borrower plans the debt and how to spend the money taken. Usually, it is the lack of self-control that does a borrower in and he/she ends up in a bad financial phase.
How to avoid bad financial patches?
1. Save and buy: This is the best concept to get rid of debt. Besides, it also encourages a savings habit. Hard-earned money makes you value the product which you buy. When you buy something on loan, (except for a house), the value of the product is often depreciated at the end of such a loan.
2. Plan credit cards: This is the most basic mistake we make while using credit cards. Credit cards offer you a credit facility of generally 45 days, which is interest-free till the 45th day. However, the interest charged later is the most costly than any other loan. Hence, instead of paying minimum dues, always plan your expenses and pay the whole bill.
3. Avoid impulse buys: Common sense always goes on a vacation when you like something and then you end up making an impulsive purchase decision. Before buying anything, think about the affordability, actual need for the product/service and don’t dip into that money reserved for an emergency, unless of course, it is an emergency. If you can answer all these points honestly, you can avoid that impulsive buy.
4. Use cash instead of credit cards: Cash leakage from your wallet is often noticed rather than swiping the car. To avoid that shock treatment on credit card bill statements, it is better to use cash and be more responsive towards expenses.
(The writer is Founder, Money Mantra — a personal finance solutions firm)