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This article (title) is meant to challenge your
thinking and preconceived notion about debt. Actually, debt is neither good nor
bad (any more than money is good or bad). But if you google it, you will see
that a lot of personal finance bloggers make money essentially teaching people
to avoid debt. So should you avoid debt? The answer is no. As I have said
countless times, Money is neither good nor bad. It only takes on the stupidity,
or wisdom (persona) of its owner. Likewise debt, it can be good or bad, a master,
or a slave.
Unlike what obtains in developed countries like America,
Nigerians can’t access loans or credit cards easily. Who will lend poor man
money?! Using credit cards is almost second nature to Americans. It is as if
for you to survive in a developed economy now, you need to be in debt. Well,
not really. But you need debt, good debt, to attain your financial goals. For example,
education is expensive, if you don’t have a rich father, uncle, caring government
and can’t afford it, you won’t get a good education without a loan. A mortgage
is a house loan that enables you to buy a house and pay over time.
That’s pretty straightforward, isn’t it? However, if you
don’t have a solid financial foundation about money, debt will bring down your
financial dreams faster than a collapsing pack of cards.
So here’s what you need to know about debt/loans, and how to
use them to achieve your financial goals of attaining independence and
financial freedom.
1. A
debt is simply an amount of money borrowed by one party from another. The borrower
is the debtor, the lender is the creditor.
2. ALL
Rich men, big corporations and governmental agencies borrow money. And I am not
talking about Nigerian government alone. It is said that the US government is
in debt to the tune of over $15 trillion.
3. Every
loan has an interest rate (except in Islamic banking where there is no
interest but the profit is shared equally). That’s how the lender wants
to make his money. It’s the interest rate that can literarily cripple you/your
business. If you don’t know how to read the fine print or expose hidden
charges, et al, you might end up paying more than the face value interest rate
on your loan.
4. Before
applying for a loan, or asking a family member to lend you money, have a good plan
for repaying it.
5. Before
taking a loan, always seek alternatives to using cash for solving money
problems. For example, instead of paying people/consultants/experts to do
things for you, see if you can do it yourself, or get someone to do it for free
even if it will be of a little less quality. It is important to start small. Many
people who are great employees fail as entrepreneurs (when starting and
managing their own businesses) because of this important mindset shift.
6. A
debt is good if it is used in acquiring an asset (-something that puts money
into your pocket). That means your mortgage is a good debt. Your student loan
is a good debt.
7. A
debt is bad if it is used in paying for or acquiring a liability (-something
that takes money away from you). If you borrow money to organize a party, buy a
personal car, or any ‘asset’ that loses value the very moment after you pay for
it, you have acquired a bad debt. It doesn’t matter how you rationalize it.
8. Rich
people use (good) debt, to make more money and become richer.
9. Poor
people use (bad) debt, to satisfy their wants and instant gratification.
Tomorrow I will give you tips and
resources on how to secure loans without collateral in Nigeria.
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