Personal Loans in Singapore
Personal loan dilemma - when not to borrow money
by Business Listings EditorPhoto credit: iStock
Borrowing money is not always a good idea, though the money you can get from borrowing can truly help you to deal with pressing financial needs.
You have to understand the difference between a good debt and bad debt so that you do your best only to get into good debt and avoid bad debts.
In general, a bad debt is one where you borrow money to spend on something you do not need such as a luxury expense. You are also getting into a bad debt if you get money from a money lender without having any ability or means to pay it back.
Bad debts should be avoided at all cost. Below are some examples of bad debts which you should steer clear of the moment you find yourself in these situations:
1. Borrowing money to buy a car
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There are two sides to this example, because if you are in the transport or taxi business and you want to borrow money to expand your business or meet a specific need, then this does not qualify to be a bad debt.
However, getting a loan to buy a car to impress people with your cool luxury ride is a bad idea, especially if there is no real need for a car. A car is a very expensive item, and, coupled with the car’s Certificate of Entitlement (COE), you will end up paying quite a big amount on a monthly basis for an item that you will keep for a mere 10 years.
Cars are not investments. Buy it only if you are able to comfortably pay for the monthly payments, and without needing to borrow money from anyone.
2. Borrowing money to fund your wedding
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You do not have to spend a colossal amount of money to fund a wedding. These days, there are very affordable service providers, and you can afford to forego a few expenses if you cannot afford them.
Borrowing money for a wedding will mean a rocky start for a newly-wed couple who will have to spend the first few months of their married life repaying debts rather than enjoying the new stage of their relationship. So minimize on the extravagance of your wedding, and instead save your money on things that will help build a bright future as a couple.
3. Borrowing money to buy clothes and other consumable goods and services
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Addicted to branded shoes, bags and clothes? There is nothing wrong when you have the money to spend on these items. It becomes a big problem though, if you find yourself borrowing money to fund your next shopping spree.
While well known labels definitely offer high quality items, this is not sufficient reason to get into debt. If you cannot afford it, always remember that there are always good options from lesser-known brands with the same level of standards and quality. Focus on function, rather than brand name.
Never get a loan to buy expensive clothes or worse, food. It will be definitely better to invest your money in profitable ventures instead.
4. Borrowing money for gambling
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This is one of the worst excuses for borrowing money. Regardless of how lucky you feel, or how good you think you are at gambling, borrowing money to gamble will only land you in financial trouble.
Going down this slippery slope will mean that you’ll be responsible for repaying debts, which will be worse if you lose during gambling. In addition you will also have to pay back the interest from your loan. This situation is a guaranteed double whammy that is best avoided at all cost.
5. Having credit card debts
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If you can stay away from credit cards, you will be doing yourself a huge favour.
Credit cards charge more interest rates compared to other types of loans and defaulting on payments can really land someone in serious debt. If you must have a credit card, make sure always to make your payments on time and in full.
If you find yourself in need of a relatively expensive item but are unable to settle the credit card in full, opt for 0% interest free payments at terms that you are comfortable with. Most banks usually allow repayments at 6, 12, or 24 months installment plans.