Lessons On Borrowing

5 important lessons for an individual borrower from the Greek crisis

​Don't borrow what you can't repay:
The simple thumb rule to follow while taking any loan is: will the cumulative EMI of all your loans exceed 50% of your take-home salary? "If the answer is yes, you would be better off not borrowing. Being over-leveraged could result in just temporary ownership of objects of your desire; worse, you may have to part with your more valuable possessions too. When you are deep into loans, you may lose the items you really value due to the loans you took for items that could have been avoided.

Watch out for potential debt traps:
The future of Greece hinges on existing lenders continuing credit support. Many individuals too tend to borrow loans or use credit cards to repay existing loans. Being unsecured debt, personal loans charge a higher interest rate, which means that total dues will not shrink in a hurry. Worse, if you choose to pay just the minimum amount due on your credit card every month, you will avoid the defaulter tag, but you will get entangled further in the debt trap. In such cases, it's best to borrow against assets and clear the loans.

Don't be too optimistic:
Although, hefty pay packages are the norm in several sectors today, even in the mid and junior levels, overconfidence can be your Achilles' heel, jeopardising your financial plans. It's best not borrow on the basis of your estimation of future income and career prospects. Many take loans in anticipation of an increment or a job switch that will yield better salary. They could land in trouble if things do not go as per plan.

Keep tabs on credit history:
Credit scores are part of the loan eligibility evaluation process. Issued by several rating agencies, credit reports constitute a record of your loans and repayment track record. You need to monitor your credit profile by obtaining the reports from these companies, or at least before applying for a loan.

Live within your means:
Nobody has ever landed in trouble for being conservative when it comes to spending. Impulse purchases offer momentary pleasure, but a cause a lot of pain when the credit card bill lands. If the latest gadget means using your credit card without adequate money in your account to pay the bill, resist the temptation—you will thank yourself later.