You can either take this as a message or financial advice. But from my experience taking a loan had not been a very pleasant experience for me. Some people have the habit of taking loans frequently. Though they have enough money in hand to spend, they still prefer taking a loan for a big spend and then repay the loan. One of my friends is like that and he also gives a good explanation for that. Though some aspects of his explanation are good and convincing, I still don't completely agree with the idea of having loans and repaying the loans all the time. Let me detail the explanations he gave me for having a loan, in this article.
One good explanation my friend gave for taking loans is about the financial security we can gain. Say for example if we have some liquid funds and we have a huge expense, if we try to hold the liquid funds with us as a backup and go for a loan, the liquid funds can be useful for us when we have a dire need for something.
I completely agree with this strategy because we cannot say for sure that we will be able to get loans easily when we are in dire need of money. Instead of keeping the liquid funds as backup and going for a loan can be helpful if we have a consistent source of income every month to repay the loan. But this ideology also comes with a problem.
There are people who are not religious about their spendings. They don't calculate their spending very well and end up doing more spending than what they should and what they earn. During such instances, people end up in huge loss. So, if people cannot control their expenditure they will end up spending the liquid fund they held for financial security and go with repaying the loan as well. In such cases, this ideology will not work out. If we are sure that we will not touch the liquid funds that we hold in our hand to back up the loan we took, then we are good to go for a loan.
It is always good to avoid loans completely. If we can manage the expense with the funds that we have in hand, it will be all the safer. When we plan to take a loan for our expense there is also a possibility that we might do some lavish expenditure that can create problems in repaying the loans. I have some of my friends who struggle to repay their loans. Some of them are locked for around 25 years to repay their loans. Imagine the life they would lead if they are locked in repaying a loan amount.
Avoiding loans will also add discipline to our character where we will not spend beyond our capacity. This will also give us a stress-free life. My friends who are locked for 25 years are always stressful and they always think about money. That is not going to help the family life. This creates more financial dependency and we will end up working hard throughout our life with a fear to repay the loan. Also when there are occasions in the family where we have to spend money, we might act as if we are penny-pinching. That will lead us to embarrassing situations in life.
