Ok first the confessions. I am born in the 1960s and going by Google’s statistics old enough to be the parent of my average reader. So if I sound like a stuck record (ha a relic of the 1970s and 1980s – the Gramaphone record player!!) so be it.

I am anti borrowing – and believe that borrowing means living beyond one’s means, but love people who borrow. This is simply because these borrowers are the ones who have seen my Hdfc bank and Hdfc Ltd shares go through the roof. And repeat. Again.

So welcome to a post where I am going to tell you why borrowing makes no sense for YOU:

1. You pay interest: It is always better to RECEIVE interest instead of PAYING interest. Simple better a lender be, and not a borrower.

2. Opting for Consumer or bank credit for your purchase is MOSTLY a case of lack of self control. So learning to delay your gratification is a nice lesson to learn. Save / Invest in a SIP and when the amount accumulates to the level you need go and buy the product.

3. Interest rates on consumer credit, credit cards, and even bank loans is very, very high. It is almost impossible to earn about 30% p.a. on your investments – but you pay interest rates in that region if you borrow for your unplanned expenses.

4. Clearly you are shooting your budget or worse – you do not even have a budget. Get things organised, get a good budget FIRST.

5. Credit card interest rates hurt very badly when you are not able to pay off in full. Every additional purchase is charged FROM the date of purchase (no not from the due date)…and this is unknown to most people and it cuts viciously.

6. A poor credit score can hurt your job prospects, cost of your future borrowing – car, house, etc., reduce your chances of getting good houses on rent, etc. So if you borrow and do not repay on time , chances are you will NOT get loans or get them at more expensive rates!

7. Maybe a little far fetched but bad financial habits will impact your close personal relationships. Your parents, siblings, girl friend, spouse – all of them could have been at the receiving end at some time!

8. It can be addictive and chances are you realize that you are used to a level of ‘addictive spending’ and you feel entitled to that standard of living!

9. In a worst case, it can lead to bankruptcy: well not so fast, but you never know, right? vaat lagi…

10. Buying a product can give you some kinda orgasmic delight, but remember it may not last too long! So NOT borrowing can give you peace of mind. So go and get peace of mind instead of consumer debt…..

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  1. Hi Subra,
    I find that your recent posts “Say no to credit” and “You MUST use your Credit car, but pay in full” are contradicting each other.

    We know that credit card industry is doing everything in its power to make everyone to purchase their credit card, as their business simply lie on customer’s in-discipline and careless attitude on money management(to pay bill on time). Then why are you even suggesting to go for credit card in your previous post.

  2. One thing I really don’t understand is when a person has money, why he has to borrow (credit) the same? As the risk of paying huge interest for not-paying on time, possibility of huge debt,spending addiction far OUTWEIGHS the benefits offered by credit card.

    Please let us understand your thoughts on why we cannot live without credit card (ie., why not my debit card)?

    Thanks and Regards, Shankar

  3. @R SIVA PRASAD: This is in response to your comment “Consumer loans have no interest. So we can use these loans.”

    The so called zero interest on consumer loans is a misrepresentation, and hence RBI has recently banned these kind of consumer loans. I am surprised you are not aware of this. What used to happen was that the zero percent loan was generally offered at MRP. Whereas if you were not financing, you could get the same product at a much lower price. This difference was actually the financing charge which you paid and surprisingly did not realize. On top of this, customers were charged a processing fee, which in percentage terms, turned out to be a big number and acted as a pseudo-interest on the loan. Nothing is free my friend. Be an aware customer. Jaago Grahak Jaago 🙂

  4. regarding comments , i like to add:
    1. this post , i think, with regard to personal finance , and that too for purely consuming loans, and not for business finance. it is altogether a different topic. so one should not worry for the future of hdfc bank , and not even for hdfc!
    2. for credit cards’ business the banks are getting 1-2 % charges from the mercantile , and they are not only dependents on the undisciplined card holders.for credit card holders, they get benefits(not only monetary) for their discipline.

  5. Thanks Vishal,

    Really I did not know this. Still I have one doubt. If we do not disclose whether we are purchasing by cash or loan while bargaining, then we may get the product at low price and then took consumer loan.
    Am I right

  6. If everybody were to stop borrowing, no credit cards, no personal loans, home loans, car loans, education loans etc., we will probably go back to the scenario of the 1970s – buy a house on retirement with the PF and Gratuity money, travel by public transport ( unless of course you are really well off), buy clothes twice a year – on Diwali and birthdays 🙂

  7. @Annapurna, even that situation is not possible. In the 1970s, you got a house on ‘pagdi’, wherein it was a tenancy transfer. The ‘rents’ were ridiculously low, so you got away without buying a house. Today how will you do it? There are no more ‘pagdi’ houses available for rent!
    Paying market rent throughout your working life is bound to leave you penniless AND no house of your own. PF/Gratuity money would very likely be a fraction of the money you’ll need to buy a house. You might want to go back to your ‘native’ place, but alas, being a 2nd generation guy (whose parents migrated to the city), you DON’T HAVE a ‘NATIVE’ place to go to upon retirement!

    Bottom line, DON’T RETIRE. Keep working till your flesh sags and your bones pop out. You’ll be lucky if you save enough to buy yourself a seat at an old age home for the remainder of your life. Staying with kids? Ha, after your babysitting of your grandkids (if your kids marry that is), your worth is done for and you’ll be nothing more than a ‘Kachrapatti’.
    My advice to the following age groups (part sarcasm, part real):
    Late 30s to early 40s: Don’t hope to retire. Try to remain employed as long as possible by hook or by crook.
    Late 20s to early 30s: If married, don’t even think of 2nd kid. Ideally don’t have kids at all. Enjoy your short life to the fullest. Everybody else will pile on YOU when you attempt to ‘settle down’
    Teens to early 20s: Do Not try to Marry (especially boys, since the female foeticide over last couple of decades will result in severe shortage of girls). If you need company, make friends and try to get into a good live-in relationship. See above regarding ‘settling down’.

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