Debt problems?
There is only ONE reason why people get into debt. Living beyond their means. Make no mistake there is just one reason.
However when people get into debt, and when they come to me, they justify on various grounds…I have very little sympathy -Satyam is never Sundaram, but always SHIVAM!!
What are the main reasons why people get into debt? Well my observation is as follows:
1. Living without knowing how to use a credit card: sounds absolutely stupid, but most people who get into debt is because people do not know how to use the credit card. They just flash it for everything – Tee shirt, food, undergarments, entertainment, fuel,….and at the end of the month do not have enough to pay. This forces them to pay in instalments – then it is the duty of the interest rates to kill you!
2. Medical emergencies: suddenly there is a medical emergency for a parent, sibling, friend…and there is Rs. 2.5L bill..and that is on the credit card or as a personal loan. Frankly, if you can afford it, you can. If you can’t , you can’t. So if you do not know how this amount is to be REPAID, please DO NOT BORROW. It hurts your credit rating, your cost of borrowing is too high, …not sure what you can do, but do something other than borrowing without thinking!
3. Too much house: many people justify buying a house saying ‘instead of paying Rs. 12k p.m. rent, Iam better off paying an EMI. Utter nonsense. A house available for 12k rent is available for a Rs. 60k EMI!! At current interest rates and perhaps even the real estate rates you might be better off renting for up to 10 years.
4. Too much car: In Mumbai like cities a car is Rs. 8k driver + 12k petrol + 22k EMI – on a CTC of Rs. 12L (entitled to a 22k emi !!). Or a bigger car – which includes other related costs – this drains out quite a lot of ‘disposable income’.
5. Not understanding personal finance: Well there are a few people who take the trouble to see what is being offerred as loans. They just go see what is available and buy – assets or liabilities!
source: www.subramoney.com