Avoid Debt Like A Plague
Debt is in fact a plague. It stops us from living quality life. Mental pressure from debt surely can make us feel tired and affect our health. Debt takes on other names such as "easy payment plan" to sneak into our personal finance.

Nowadays the credit system is a mess. Many first creditors do not assess the debtor properly. They later sell credit to second creditors as bonds, and many second creditors sell bond to third creditors. When there are huge amount of bad debts, the whole economy collapse.

Buying things on loan creates a illusion that makes us think we do not need to struggle for living. It is bad to be materialistic. It is worst that we are after materialistic life by having debt. Debt is always connected with squander. We need clothes, but we do not need clothes of latest fashion. Shopping does not mean happiness. Consumerism is a negative word. If we are seeking happiness, do something more practical and meaningful without harming people and environment.

Taking loan is not a personal matter. It can bring impact to the society. Loans bring up the price of items because loans create demand for the items. For example study loan causes the study fee to increase. Housing loan causes the house price to go up. When new loan contract is signed, new money is created. The more the money is in the society, the less the value of the money is.

When we spend money before earning it, we are making other people rich but making ourselves poor. That is why every month new loan sharks or usurers, both legitimate and illegitimate, come out. More sprout during football/soccer season due to bookie gambling.

Some people say heavy loan can urge us to earn more money. Will they stir up a bee hive and let the bees urge them to run faster? We rather want to motivate ourselves to earn more money to buy the thing we want without debt.

Do not take debt for granted. Do not view it as part of our life. It is a serious society problem that may ruin a nation. We should view debt seriously like the old-timers. Last time debtors were dishonored. Although now there is no such perception but it still does not feel good to be a debtor.

Due to paying interest, we will lose quite a big chunk of our wealth that we are supposed to have at the end.

Do not regard the organizations which offers us credit as generous. Once we tell the credit card companies, even reputable ones, our phone number, they may even "sell" it info out to their affiliates. Then we will be bothered by junk calls and mails. Do not be happy if they increase our credit limit because credit balance is not the money we have.

We do not really own the thing we buy on credit. Before admiring people with an expensive car, we should get to know whether he or she buys it on loan.

We should not just feel that our life is stable and we are able to pay the debt every month. Hiccup in life can happens. This hiccup can really mess up our personal finance even it just happens for one time. And we will be blacklisted among the bankers.

The school does not teach us about debt. Having zero money is better than having -100,000 money.

If we cannot buy something with cash it means we do not afford it yet. Buying it on loan will later gives us pressure and makes us hate or resent rather than enjoy the thing we have bought. This is called buyer's remorse. When I was a kid, buying things on loan never came into my mind. I knew to buy that thing I wanted I had to put in effort to accumulate money. By doing this I knew that thing was not bought out of a whim. This is because after taking some time to save money, I would see if the desire to own that thing was still there. Kids nowadays may not be that lucky anymore due to the intensive exposure to debt concept.

Debt may make us tell lie for example when we cannot pay it on time and we bump into your debtee. Other example is we give our girlfriend a supplementary credit card and she becomes heavily in debt. Then we have to clear away her debt and our mom gets to know that and we tell lie to cover up for her.

Gambling is always associated with debt. Avoid even lottery.

Do not spoil our kids by buying them a lot of unnecessary things. Educate our kids about how money comes from. Otherwise we will need to clear off their debt next time. This is especially applicable for Asian parents.

Do not buy if we cannot afford it. If we already have debt, wait until we pay off all our debt before buying something extra in life (e.g. a TV, an air-conditioner, a bigger house). To start paying off, focus on the one that has the highest interest.

Do not buy car on loan. This also can slow down the increase of number of cars on the road. Some employers try to convince their employees to buy car on loan so that the employee will have a burden and will not quit the job so easily.

If we are going to live in one place for long, it is OK to buy a house on bank loan. But make sure the monthly interest amount is not more than your desired monthly rental amount. For example we pay $150 for room rental. If monthly house loan interest for buying a house exceeds $150, we should just continue to rent a room or look for a cheaper house. Of course it is better to pay the house installment loan than to pay for the house rental. And usually a house will appreciate if it is in a decent neighborhood. But again we need just a shelter, not a mansion. Note that we should not tell people that we own a house if we are still paying installment. The bank owns the house. The bank is the landlord.

Do we have a fat wallet due to having a few credit cards? I do not discourage the use of credit card. It can be used to make payment online including utility bill. Credit card is quite necessary if we go overseas. Have only one credit card. Just make sure there is enough cash to pay back the full amount in the monthly statement. This is like using a charge card. In fact we can deposit a bit more money into the credit card to make it like a debit card. Or get a charge card or debit card instead. Only then credit cards can be considered our helper. Get the one without annual fee.

What to do if already in debt

Make a target to achieve ZERO debt. Are we businessmen who need cash for turnover? Is the ROI of our cash in saving, unit trust etc higher than the interest rate of our debt? If no, use up the cash to reduce the debt. Even withdraw maximum allowable amount from retirement account. Money in retirement account does not bring much joy when we retire if half of our life is in debt. If already in debt, be thrifty so that we able to pay more than the instalment to reduce the interest. And we will have more freedom to explore your life around.
Posted: 2008-04-02; updated: 2015-12-29 by Ong Seng Aun.
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