‘My Grandson has run up a HUGE debt…fool he is, so I am going to repay it in one shot’…………….said a friend’s father.
Chuckle chuckle….DO NOT REPAY the loan I said.
I said again R bhai, do not repay your grandson’s debt, it is not worth it.
He was really shocked – knowing my anti-debt stance and hatred to pay interest, EVER.
I asked him “How much is the debt”. The debt was Rs. 95,000. Not to big, the grandfather has a net-worth in excess of Rs. 20 crores, so paying this off in a jiffy will not even be felt by the family.
I told him, if your grandson has incurred this debt, it is a SYMPTOM of him living beyond his means. It is not THE PROBLEM. The problem was elsewhere.
So I called the boy and said, tell me how did you run up this debt of 95k and how do you plan to repay it.
He said : I can repay Rs. 4k a month, so over 25 months I will be able to repay the debt.
I : How did this build up, but?
He said: I went to a disco with a couple of friends – it cost me about 13k. Bought a mobile for 18k, and went for a friend’s wedding – that was Rs. 11k. Other than this it was some eating out, some clothes, some CDs, ….and not paying on time all this added up.
I : In 9 months of working you have earned Rs. 24k a month, and OVER SPENT 95k – is this not bad?
He said: Yes, I feel terrible. My take home pay is about 19k, I pay rent of 6k, pay for food,….and have ZERO balance.
I: How the …..will you repay.
He frankly had no answer.
I gave the following solution.
The boy would keep the credit card in the grandfather’s possession. He would change the address of the card to the grandfather’s address, and he would get himself a new card with a limit of Rs. 25k!
The boy would pay x Rs. per month, and the grandfather would also pay Rs. x – match the grandson rupee for rupee.
I also said…up to Rs. 4000 a month, grandfather would match 100%, and beyond Rs. 4000, GF would match 125%. So it became a clear incentive to reduce the standard of living and repay FAST.
But there was a catch. Grand father had to be repaid at the same rate at which GF gave the money – and he had to start a SIP of Rs. 2k per month.
The kid paid in fast, the Grandfather was happy with the solution (thrilled should I say), …and hey I got a post!
I explained to the GF – what is a Moral hazard. If the GF had paid off the whole debt, he would have run up a debt again, simple.
Do you think the world wants a solution like this for Greece? No. They just want to print notes and give it to Greece.
If I were a Greek, I would take the Euros and buy property in UK. After a few years sell the property in UK, take the pounds, convert to Euro and retire in one of the islands off Greece. Beggars can choose, these days.
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