7 Oct 2014


courtesy: eventbrite.com
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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