DEBT? It’s Easy If You Do It Smart

Nowadays, getting a loan is much easier than earning money. It is the view of one of the inquiries during the discussion.

To learn more about his mindset, I asked him, “Why are you thinking like this?”

He said, “I was receiving calls for pre-approved credit cards from banks and applied for it and received it within ten days.”

Then I asked, “Is it required for you or just grabbed the opportunity?

He replied, “Boss, opportunity lost is everything lost. I grabbed it, but I think that I made a mistake.”

I was interested in his money behavior, so I asked, “Why are you thinking so?

“Are you not watching TV news? Or reading any other newspapers,” he asked.

I said, “Yes, I read newspapers regularly and watch TV for some important news. But why do you think that you made a mistake.”

He showed me news about the Sri Lanka crisis on his WhatsApp message and told me that If Sri Lanks could face this issue, What about me? How can I manage my vast credit card loans? How can I collect my three credit card dues now? I got easy credit cards from banks, which pushed me into a debt trap.

During the discussion, he explained it in detail “It’s a revolving credit for me for the last 18 months. I could not be able to come out of it. Yes. It’s a mistake to swipe credit cards for everything. The outstanding amount is beyond my control, seeing the Sri Lanka crisis like me.”

“Oh, this is the case. I got your point,” I replied and discussed debt management solutions.

It is the case for many who have not considered and checked any debt’s pros and cons. Banks are trying to sell the loans to you, and you are trapped in this debt trap.

Sometimes you can not control your desire for instant gratification and are trapped in revolving credit. And you are in a debt crisis. You or I may compare our case with Sri Lanka’s crisis. Yes, it’s true that if you are not managing your money correctly, you may be in such type of crisis in your life.

Any debt has become a critical component in family finances. Spending more money per month than you make is spending money you don’t have or money you are yet to earn.

Earning money is easy, but managing money and debt is very difficult. You may get easy loans, whether credit cards, car loans, home loans, cash advances, etc. But it isn’t easy to repay the loans if you have not checked your monthly cash flows before taking the loans. And you have not limited this loan’s short-term and long-term impact on your budget.

Irresponsible borrowing leads to a debt trap, and once you are in a debt trap, it becomes strict with time. The CIBIL credit score takes a big hit, and savings and financial goals face a toss while debts continue to grow.

Let’s check Sri Lanka Crisis:

  • The country owes more than $51bn (£39bn) to foreign lenders, including $6.5bn to China, which is 12.74%.
  • Government with central bank debt rose to 140 percent of GDP in April 2022.
  • Foreign reserves with only $2.31 billion left with over $4 billion in debt repayment.
  • FDI fell to $548 million in 2020 compared to $793 million and $1.6 billion in 2019 and 2018.
  • A record high Crude oil prices in 14 years, $125/barrel at the height of the crisis.
  • Covid-19 pandemic effect
  • It’s the worst economic crisis since Sri Lanka’s independence in 1948.

In Sri Lanka, there are many other problems like inflation running at more than 50%, shortages of basics such as fuel, food, and medicines, daily power cuts, etc. We don’t want to discuss that here now.

Yes. the story is continuing. I hope and pray that Sri Lanka will come out of this crisis soon.

But what about you like the inquiry who has visited our office?

This case may not be similar to yours, but most people are trapped in a debt trap without knowing what a debt is.

What is a loan or debt? In a simple sense, all debt is the same: you take it now and give back in the future with principal and interest.

You can avail yourself of the loans quickly, but they can have positive or negative consequences on your financial situation. Knowing the difference between good debt and bad debt is essential before taking any debt.

You should check your debt-to-income ratio before taking any short-term or long-term loan. Yes, it would help if you reworked your budget and the EMI paying capacity for you with all future unpredictable situations. It’s advisable to check your CIBIL scores (Above 750 is good for you) beforehand and try to keep good scores on this. If you are not checking these minor points, then it may drag you to a massive debt crisis like Sri Lanka.

If you are taking a loan that helps increase the asset’s value (home loan, education loan, etc.), then it’s good debt.

Suppose it is not a value-increasing asset (automobiles, credit cards). In that case, it is unplanned within your budget and can negatively impact your CIBIL credit score. Then it’s a Bad debt for you, typically higher interest debt.

Check yourself whether you are in Good debt or bad debt situation. Understanding them is essential so you can make financial decisions cautiously.

“If you would know the value of money, go and try to borrow some; for he that goes a borrowing goes a sorrowing.” ~ Benjamin Franklin

Here are some tips that may help you to avoid a crisis.

  • Make a Budget
  • Maximize your liquid savings (including emergency fund)
  • Prepare to minimize your monthly expenses
  • Closely manage and monitor your monthly expenses
  • Pay down your credit card debt
  • Check your insurance coverage

Unpredictable life leads to many ups and downs in your life. If there is anything you can do to avoid a crisis like this or Sri Lanka, it’s to be careful and prepared. You can move into this financial jungle smoothly with the proper strategy and planning.

Keep in mind that over-borrowing is a trap you must avoid in your life. It’s an essential part of personal finance and happy life.

Be in HappyMoney Zone!

I am a CERTIFIED FINANCIAL PLANNERCM, CHARTERED WEALTH MANAGER®. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do. If you have a question about your financial situation, please connect with me. I’d be delighted to try to be of service.

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