A friend of mine has constructed a house 5 years back and have taken a home loan. Around 2 years back he has taken a new car amd then taken a new loan. Around 6 months he has taken another loan when he got a new land for him. And then yesterday I got a call that he has bought a new motorcycle and he has taken another loan for it. So now his 60% of salary goes to the repayment of loan only.
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So now is it advisable for taking loan while on debt. For a person who has a habit of taking loan, for him it doesn't bother him that much because he is too comfortable with his job and doesn't forsee much expenses going forward. But the problem is he is actually getting into the debt trap and there is no way of him to come out rather than pay the loan EMI till he works or till the EMI tenure is over.
The meaning of debt trap is that an individual are compelled to take more loans and this is true in my friends case. Any new things he will buy, he will take it on loan and thus will pay EMI. The problem he is facing now is that he doesn't have any money on hand for any emergencies, he doesn't have retirement money as well as he doesn't have any investment.
The investment he has is the 2 lands which is again the worst form of investment because of its illiquid nature. If he has to sell his land he might not be able to do quickly. And basically all his major investment is in real estate only. He was asking me about the stock market, I told him that rather than jumping on creating the wealth, he first has to understand personal finance.
The basic nature of personal finance is that your loan amount should not be 30% of your total take home and thus you should not take more loan if you have an existing loan. And thus he ha sto understand the basic before creating that wealth for himself.
