Think before you take out a loan - not all debts are bad
Debts can be as small as a few dollars borrowed from a friend for a few days. 'Could you lend me HK$30? I'd like a coffee but I don't have enough money. I'll pay you back tomorrow.'
Or they can be complicated, eight-digit loans to finance a project like building a new factory. But debts have a common point: they are not free. The price of having money now and being able to pay back later is called interest. Interest rates fluctuate according to different factors: central banks' decisions, market expectations, the types of debt and the borrower.
Borrowers who always pay on time have a good 'credit history'. They can easily borrow money from banks.
People borrow money for different reasons: because they are short of cash, to buy a house or car, or to pay for an unexpected expense, like a repair or a medical bill.
Is it a good or a bad idea to borrow money? It depends on what you borrow the money for. If you borrow money to pay for something valuable that you can resell, this is ok. For example, a house. This type of loan enables you to build assets, or valuables. But if you buy clothes, food or go for a holiday on credit, you don't have any valuable asset in exchange.
And don't borrow too much, even to acquire a valuable. You would run out of money for the other expenses.
Planning for sunnier days
The cicada: tomorrow is far away, let's live for today! You have borrowed small sums here and there and now you feel you are in trouble? Don't stop singing!
Write a list of your debts. Review the expenses you can do without. The extra money will go to pay back your debts. Calculate how much debt you can pay back every week or month. Follow your plan until sunnier days come back.
The good news is: all the money you have set aside to pay back your debts can go into a savings account. Make the interest work for you and no longer against you!
The ant: working and saving are your two goals. The cicada has asked for a loan. What do you do? Lending money is a bank's business so think twice before doing it.
And don't forget: if a borrower is overloaded with debt, it becomes the lender's problem. It happened in the United States this summer when borrowers could no longer pay their mortgage.
