Sunday, January 18, 2015

Financial management : Loans

What drives you to take loan or loans?
This is the most important question to ask before you decide to apply for loans, either it is a personal loan or business loan or housing loan or ASB loan or other loans.

My 2cents opinion, there are only 2 main rational reasons to apply for loans:
  1. to expand your business;
  2. investing in properties - mortgage loan

Another my 2cents opinions:
  1. Never ever apply loan to cover-up or settle other loans. It's like eliminating your hole by digging another hole. You will end-up having more holes.
  2. Never apply for ASB Loan
  3. Never apply credit card Loan
  4. Never accept any offer from banks on personal loans when you have sufficient income or money to spend for your families

I myself received few calls from banks offering me credit facilities with attractive profit rates. However.....we will definitely indulge in troubles if we receive such offer when we really doesn't need that.

If you have indulge in bad debts, more bad debts than good debts, you will need to balance both debts. Income Producing Debt includes reasonable housing and education. Housing that you rent and can facilitate your ability to earn more income. If use properly, debt can help you build capital and more capital. Income-Reducing Debt includes all credit card debt and consumer debt. This type of debt does nothing to help you create more income.

The reason why we have so much trouble with debt is debt is not been kept in proportion to our income. We have borrowed too much money to buy houses/homes, cars, education, vacations and others, that lead buries to us.

Remember that, when you take debt, it must be small enough so that you can afford to pay back the debt without problems.

"Never spend your money before you have it." ~Thomas Jefferson
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