by Mr P Raju, AKPK Melaka
Borrowing money means getting into debt. There are many ways to land oneself in the clutch of debt – credit cards, hire purchase of cars, personal loans, mortgages, student loans, and the list goes on. When you borrow, you need to repay the loan amount or principal+interest. Interest is what a borrower pays a lender for the temporary use of the lender’s money. But remember:
“Debt is like a rubber band. Stretch too far and it WILL snap.”
The rubber band will not only snap but it will hurt our hands. In other words, having too many consumer loans will limit our living options and hurt our lives in many ways.
Common reasons for going into debt:
- Buying a home
- Buying a car
- Poor money management
- Medical bills
- Unexpected expenses (eg. car repairs)
- Living beyond one's means
- Purchase of consumer goods on credit (eg. furniture, electronic items)
- Loss of income
- Too little savings
- Starting a business
- Loan repayments
Generally every consumer should:
- avoid the overuse of credit
- reduce the total amount of debt
- shorten their repayment period
- reduce finance charges
Debt management strategies
- Understand debt as only a ‘symptom’ and that the underlying problem is something else.
- Opt for cash instead of credit.
- Establish a safe debt level.
- Live within your means.
- Resist buying on impulse.
- Use credit for productive purposes only (such as proper investments).
- Plan ahead.
- Make repayments on time.
- Smart use of credit card.
- Consolidation of loans.
Note: Each of the above strategies will be discussed in the upcoming newsletters. So don’t miss the next Read$ens!