Wouldn’t it be wonderful if you were rich and you could buy anything that your heart desires without getting into debt? But then again the rich also get into debt. So what it all boils down to is perhaps not so much how much you have as how you manage to do with what you have.
But nowadays, this concept of “Buy now, pay later” enables you to buy with money that you don’t have, yet. Consumers may be happy with the relative ease with which they can buy goods on credit. Credit allows them to be the envy of colleagues and neighbours. There is, however, one big snag and that is credit costs money, sometimes lots of it.
- Don’t sweep your debts under the carpet. Or even under the bed, for that matter. Ignoring the fact that you have a debt problem will make matters worse because the debts will not disappear by themselves.
- Don’t live a RM50,000 lifestyle on a RM24,000 salary. Try doing that and you will end up with a big headache. Living within your means may be unglamorous but it is a smart thing to do. You will also have a better time as there will be no creditors knocking on your door or anyone trying to make you a bankrupt.
- Don’t be influenced by advertisements. Don’t make final buying decisions based on what you see or read in the media. Don’t be taken in by their gimmick that not buying a particular product will make you a failure as a person, parent or spouse. Most advertisements should be taken with a pinch of salt as they not only sell the products but also promote the means by which consumers can buy these products on credit.
- Don’t use the credit card for borrowing. As an interest-free convenience and provided you settle promptly in full by the required date, credit cards are, well, acceptable. But as a means of borrowing, they are a definite “No”. Buying on credit (and not settling the payment in full) increases the cost of the purchase. The interest that accrues each month adds to the cost of the purchase. And the vicious cycle begins for as the interest adds up each month, you will end up taking even longer to pay off the loan and the monthly instalment will get bigger and bigger until it balloons beyond your ability to keep up with the payments.
- Don’t buy on hire-purchase if you an afford to pay in one lump sum. If you can’t, save till you can. You’ll earn interest when you save, whereas you pay interest when buying on hire-purchase or easy payment.
- Don’t buy a house when you just can’t afford to scrape together the monthly instalments. Buy a cheaper house, or save up first while you rent.
- Think carefully first before signing on as a guarantor for someone else’s loan. One day you may have to inherit his debt. As a guarantor you are actually agreeing to pay off his debt should he default. Don’t be under the illusion that it is safe to be a guarantor because others have signed as well.
- Don’t gamble. It’s unlikely you’ll eventually win. Almost all gamblers won’t know how to quit when winning, so they end up quitting only when losses are too high. Get your kick out of life through healthier things than gambling!
Learn more on how to manage your money in the CAP Guide, THE MONEY BOOK.