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Monday, 16 March 2015

Debts and Sorrow

"He that goes a borrowing goes a sorrowing."

Thus goes a saying of Benjamin Franklin. In today's world, where costs of living keep going up, it goes without saying that many people soon find themselves unable to cope with their paltry salary. Wanting the finer things in life, some of them borrow to make ends meet -- only to find that the debts they incurred are now replaced by new debts, with high interest rates.

It would be great if we could live without debt. It would be great if everything we wanted, we could get. But the two great things can't always co-exist. So to live debt-free, sometimes, we have to forgo certain things that we desire. We will soon be sinking in debts if we don't manage our debts well.

But let's say that you're already in debt. It might be credit cards. It might be loans. How do you get out of it? One of the ideas that I've seen is the debt snowball method, described in various blogs online.

The debt snowball method works like this: You continue to pay the minimum on all debts, every month. At the same time, any leftover cash is pushed to the smallest debt that you have. Very soon, you'll find that the smallest debt has been cleared. Yay! You celebrate a little victory, and dance a little dance. The process begins again with the new "smallest debt", while ensuring minimum payments are paid for all other debts.

With normal debt payments, we the debtors would be hard-pressed to focus on which one to settle. Paying the minimum (or slightly more than the minimum) enables us to focus on the smallest debt(s). We all know, once we've tasted a little bit of victory, our interest in the matter picks up.

What alternatives are there compared to borrowing money? I can think of a few at the moment.

The first alternative is postponing your purchase -- delayed gratification. You postpone buying that shiny new toy because your cashflow is rather constrained. Instead, you save up and buy it at a future date, when you have the cash to buy it (rather than the credit card to buy it). Who knows, the item might drop in price because a newer model has suddenly been released!

The second alternative is buying second hand, better known as "used" or even better yet, "pre-loved". If you look hard enough, you'll be able to uncover good gems from genuine sellers. Many things which we think we want, might be only passing fads. Buying second hand helps lower the cost of obtaining what we want, and at the same time you might also get a few hints from the seller on how to use the product in question.

The third alternative is to share a purchase. Basically, you can pool money with some people to buy something, and agree to take turns to use it. If you really like it, you can buy it outright from them later on. This helps cut down the risk that you might not like it. Don't be like some people, who purchase things on impulse, and later on regret.