Before I start this post, I would like to be clear about the two kinds of debts because not all debts are bad. There is what we call “good debts”. These are debts that will pay for itself in the future. It will generate income that will benefit you in the long run.
Examples are debts for starting up a business or for a college education. Although you incurred a debt, the income from your business, later on, will eventually pay for the amount that you borrowed.
For education, the achievement you’ll get will determine the range of your salary. The higher the education you got, the higher potential pay you will get from your job. This will then allow you to pay for your education loan or debt.
Stay Away from the Bad Debts
The kind of debt that we must keep away from are the bad debts. These kinds of debts are the opposite; it won’t pay for itself but you will every month including the interest.
The best example for bad debts is buying gadgets or fashion clothing using credit cards. One scenario I often observe young working adults like me do is this impulse shopping. There is this pressure that you must be up to date with your gadgets because your colleagues are also doing the same. We do it without realizing that the payment and interest we spend for these things can actually be used for something else.
The worrying fact is after you compliment them with, “Wow! Cool new smartphone, friend”, then you ask them their financial status and they will just say, “Yes, I’m doing okay financially. I don’t have any investments like that but my savings bank account still has 1,000, my budget for a week before my next salary arrives”.
We are often blinded with this 0% interest rate when using credit cards. It is still the same thing though because when you buy a thing by cash, the price is actually way cheaper than buying it with your credit card.
So, you’ve got to be smart about this or else, you’ll be part of those people caught in this thing called “credit card trap”.
Why Avoid Bad Debts?
Debts incurred either through bank loans, credit card loans or by borrowing money from a friend and family should be considered with great urgency because it will surely lead you to nowhere.
Debts will prevent you from your financial goals
You will not achieve your goals if there is something else that you spend your money for. You can’t go to your dream vacations or save up for your retirement when your monthly salary will be deducted right away with your loans and credit card payments.
Again, it will bring you nowhere. You will be stuck to this routine for months or years until you fully paid your debt. How uneventful and boring will that be?
Debts make you worry and stressed
Having debts will make you think about it all the time, how you can come up with the money to pay for it. This can lead to stress and could further lead to medical problems.
I’d also like to add that there are these times in our lives that something unexpected happens like a broken bone that needs an operation or a loved one needing immediate financial help. Assuming that since you are using a credit card to buy something means you don’t have any emergency fund. With these kinds of the additional burden will surely make you more stressed and sleepless at night.
Debts can ruin or end relationships
Most often than not, debts have the power to stain relationship between friends and family. Trust will be broken and friends become your enemies. This usually happens when borrowing money and the borrower hasn’t paid on time or has forgotten about the existence of the debt or the person he borrowed it from. This kind of stories rarely ends well.
How to Avoid Debts?
Build up your Emergency Fund
Most likely, you will not use your credit card if you have a fund available when you need to buy something. It will be no sense to be using a credit card that will accumulate interest every month if you have the cash to pay for it at a cheaper price.
My unrecommended example was when I bought my computer for 41,000 Baht using credit card payments for 9 months. If I paid it by cash, it’ll only be 37, 500 Baht. I should have saved 3,500 Baht. But, this was the time that I didn’t have my savings fund yet and I need to have a new computer for my part-time online jobs.
Don’t use credit card or better yet don’t get a credit card
Credit cards are used for convenience but when wrongly handled can be a source of a problem. The best advice is to not have a credit card at all. But, if you do have, don’t bring it with you all the time especially when you go to the malls. The tendency is that you’ll use it for something you think is important but later will regret buying it.
Use your credit card wisely. These cards have power; power to make your life comfortable and power to mess up with your life.
I personally don’t have a credit card because every time I checked with a bank, I didn’t have the complete requirements they need such as the work permit should be valid for 2 years. I think it as a blessing in disguise because I know for myself that if I have a credit card before, I will use it improperly as I also have a tendency to shop impulsively.
Pay on time
There will be instances when debts are just really necessary in life. It’s fine as long as you pay on time. You’ll avoid penalty from your bank with your credit cards. You’ll maintain a good trusting relationship with your friends and family when you make sure to pay on the date you promised to pay.
If, however you need an extension, it won’t hurt to tell the person in advance that you can’t pay them in a calm and humble way. I’m sure they’ll understand, Most importantly, you’ll save your relationship and friendship.
Do you have debts?
How do you handle your debts?
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