You can avoid a debt trap

After two years of formal employment, Moses decided to borrow to buy a car. Because his friends had cars, he was feeling uncomfortable to have to rely on taxis and hiring motorcyclists to attend meetings and social gatherings. Owning a car is almost everyone’s dream because public transport can be very unpredictable.
But before he could clear the car loan, Moses was hit by a wedding bug. All his friends were wedded and he felt it was about time that he too tied the knot. Quickly, he applied for another loan for the big do. After the function, his idea was to secure a new bank loan to buy land and build a house for the family. All these were great ideas any man could ever think of. The challenge is that Moses accumulated debts that he failed to service.
Different people borrow for various reasons and so is their ability to clear the loans. Although not all forms of borrowing involve risks, some credit decisions can lead you into debt traps.
No one wants to get stuck in debt. Indebtedness affects productivity and reputation. It is very important that you avoid common borrowing mistakes.
Know your bargain. Before settling for a loan, first evaluate your salary and devise a payback schedule that will not affect your daily expenses.
Commit. Ensure you invest the money as planned. Any delays may ‘tempt’ you to squander the loan money.
Limit expenses. If you are renting, it’s aisable not to spend more than 15 per cent of your gross income. Buying a house or land should be done through savings over time.
Guaranteeing a loan. Appending your name to someone’s debt is equivalent to taking up that debt, especially if the borrower fails to pay. Say no if not sure. If you can, avoid taking up a new loan before clearing a current one. Always set aside cash for emergencies and plan before borrowing.
The writer is a human resources expert and a journalist.

SOURCE: Daily Monitor

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