Lately we have been inundated with news in the media on the financial debt crisis in Europe and also on perhaps the mother of all debt crises in the USA. We do not need an economics guru to tell us why such crises occur as we all know that debt arises when nations need to borrow to spend more than what they can afford.
Zeroing in on a personal level, each of us will also suffer a similar financial debt crisis if we need to borrow to spend on things we cannot afford. So, how do we solve our personal debt crisis? The golden rule is never to get into debt. Easy isn’t it? If I don’t have a debt, I don’t have a debt crisis and can dispense with thoughts of having plans for debt consolidation, debt management, debt relief or similar solutions to debt problems. More importantly, if I am in debt, I will be a servant to the lender and that is not a good position to be in. “Easier said than done” will be the obvious retort from many. Nevertheless, if wisdom, knowledge and discipline are with us, then our spending needs and cash management will be well-guided and will not land us in debt.
Living within our means is a key principle and is even advocated in mainstream religious teachings. The Christian Bible discourages Christians to be in debt and if in debt, to get out of it as quickly as possible. However, how many of us can keep a golden rule and not break it? Life is not so simple and most of us will incur a measure of debt at some points in time. Whilst the use of debt may be unavoidable, especially when there are so many financial institutions tempting us with “easy” money via credit cards and personal loans, we need to carefully evaluate the purpose of such a use.
Thus, under what circumstances would it be alright for one to engage in the use of debt? There really are no right answers applicable to each and every individual and every particular situation. Perhaps the following could serve as useful guidelines in the use of debt :
(a) Do not buy something because it is on sale unless that item is really needed.
(b) In acquiring an asset, purchase one that is really needed (like a dwelling place), capable of appreciation in value, and can also be easily disposed when needed to do so.
(c) If there is really a “sure winner” investment, then ensure that the item can be disposed at a value greater than its purchase price when required to do so.
(d) A caveat to the above will be to ensure that there is always sufficient cash to pay the instalments or repayments without detriment to cash required for daily essentials.
In summary, this short article is not intended to prescribe solutions to manage and get out of debt but to encourage us to refrain from getting into debt, and if the use of debt is inevitable, then to do so following certain guidelines. A parting sharing will be this - whilst it is good for us to strive to do better to have a better future, we should nevertheless be content with what we are and have without the use of debt.
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