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Credit – Boon or Bane?

Credit – Boon or Bane?

Irony of my life ….or should I say Loans

My grandmother once said “Loans are like whirlpools, they suck you down the vortex and getting out of it is often a struggle,” I was quite young when these words of wisdom were passed on to me and didn’t quite understand the profoundness of these wise words. 

After completing college, I was happy to be placed through the campus, and was enjoying my first taste of financial freedom. I had convinced my dad that I needed a car and asked him to sponsor the down payment thinking that I would repay the loan in installments from my salary. My granny had a different point of view; I was provided accommodation by my employer within the company campus itself so the need for car was beyond my granny’s understanding especially when I had to pay an interest of whooping 15% on the loan.

A decade has since passed and I still have my mortgage, car and personal loan due for another decade of my life. At times I feel who am I working so hard for? Myself or my financiers? Irony is, a short while ago I was considering taking loan for the renovation of my house!  I know for sure my granny would be baffled, thinking me to be an educated fool.

The coming of Age of Credit

 

The new realty of everyone’s life today! We have loan products ranging from mortgages, car to shopping and many other complex ones.  We keep working hard for a major part of our adult life paying loan installments and being happy owners of many things; some much needed, some not so much and many more completely useless. The sense of ownership can be shattered if we don’t repay any of the above stated outstanding loans. My beautiful house and that favourite car would end up as property of bank and so would a lot of other things in my house like my designer bags, my flat screen television and what not.

 Statistics show that in the USA people on an average spend $133 for every $100 they earn! That’s the case not only with the USA; many other developed countries have extremely high levels of individual debt. Debt is not a bad thing as long as it is within reasons. Excess of Debt like everything else is a cause of concern, and that is a fundamental paradigm. Young working population need not be restricted by their current income capacity to invest into necessities like home as a shelter or vehicle as a means to commute, given they can pay off the loan over a longer period of time. But where does borrowing culture stop? Borrowing for investing in stock market, borrowing for wedding, borrowing to buy a vacation home, borrowing for shopping, borrowing for plastic surgery!….the insanity cannot prevail beyond a point.

The Choice

 

Many a times people try to manage the way money works for them but realise that it’s hard to keep track of expenses and even harder to stick to the discipline of budgeting for self. Almost always the idea of thinking through our incomes and sticking to expenses is harder than following a celebrity’s diets. The initial stages of our work life (20’s) are very crucial. The habit of saving and informed investing inculcated at the beginning of the career pay rich dividends for the entire life. Every wise human will agree with this, only problem is words are not always followed by action. We know!

It’s hard to implement the financial discipline. Impulsive indulgence compelled by fancy advertisements coupled with easy access to credit make us believe our life is incomplete without a specific product and drives us into the debt trap.

We think things would be better tomorrow but that ‘tomorrow’ never comes. What might come earlier is retirement! But as I said earlier, debt in itself isn’t bad. It is necessary to make a smoother transition to a rational lifestyle before it’s too late and we are forced into a bleak future with limited means and inflated needs.

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