Debt is the kind of topic everyone knows about, but no one really understands it.
It wasn’t a concept that was typically taught in schools or explained by your parents. For the majority of you, it is only something you experienced after taking out your first loan on that university education or for your first HDB flat.
However, more and more young people are getting caught blindsided by their growing debts. Here are 5 important things you have got to know about debts before it happens to YOU.
1) It Grows… Very Quickly
This is one of the mistakes commonly overlooked by first time loanees. When you take on a debt any amount, let’s say $20,000 for example, it never truly stays at just $20,000.
Depending on the interest which it was being loaned to you, you will eventually end up paying more than $20,000… every single time!
2) There Are Good Debts And Bad Debts
Debt is like cholesterol. Just as how there are good cholesterol and bad cholesterol, there are also good debts and bad debts.
Since we have already established that all debts grow in size, a good debt is one where the money is put into an investment that grows at a faster rate than your debt.
For example: Taking a loan to buy a house that is appreciating in value – that’s a good debt.
On the other hand, a bad debt happens when you spend the money on something that does not grow.
For example: Using the money to buy a branded bag, a depreciating car or go on a holiday.
These are expenses which you would have to earn back. And you take a loan to pay for them, you probably end up paying more at the end of the day.
3) You Need To Keep Track Of Your Debts
Given the growing nature of debts, it can get out of hand very easily if you do not keep an eye on it. You need to do more than just eyeball it. You need to write it down, record it and update it regularly if you’re serious about paying it off.
Most people suddenly get shocked by the amount that their debt has grown to because they do not keep track of it. This is particularly pressing given that some of us take on multiple debts at the same time.
It is not uncommon for a Singaporean to finance a housing loan, a car loan and even some credit card debts at the same time. With so much accessibility to easy credit, a person who does not religiously track his debts is flirting with danger.
4) Avoid Debt If You Don’t Know How It Works
While I generally don’t advice this, avoiding debt is very practical suggestion for people who are too lazy to really go figure this all out.
It is better to avoid some mistakes, especially if they are financially threatening in nature.
5) Debt Can Ruin Your Life
Unfortunately, this statement is not an exaggeration of sorts. Many adults are working from paycheck to paycheck because of some erroneous decisions made when they were younger.
Remember the SIA stewardess who is only 29 but chalked up over $30,000 in debt? Even her $6,000 per month salary is not enough to save her from her growing debts and her negative bank balance!
Don’t let your debts get the better of you. A little self control now can save you from a lot of pain later.
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