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Can you really lead a life free of financial slavery?

  Friday, October 28, 2016     written by : CSF-Team
Finance

Financially slavery is something that is often spoken in the same vein as credit. You will find many discourses that tell you that taking long term loans is signing up for financial slavery. In fact, this is the reason that most people above fifty who belong to a previous generation are likely to tell you that they can never imagine living a life on credit. Although mindsets have hugely changed from back then and youngsters today are far more comfortable with the idea of availing credit.

Nevertheless, the subject of whether or not credit is equal to financial slavery is a subject of perennial debate till date. Let us take a pragmatic look at the same before arriving at a conclusion.

What is financial slavery?

From our childhood we have been taught lessons of being able to distinguish between needs and wants. But in this modern hyper connected world that we live in today, it is very difficult to make this distinction. Thus as our aspirations grow as we watch people around us progressing, we as human beings begin to “want more” even though we may know heart of hearts that we are stretching beyond our means.

While liquidating assets to meet one's heart's desires is taking a step too far people often feel that buying things on a credit card or even a small personal loan does not hurt. No sooner than the first desire is fulfilled rather effortlessly and the individual even manages to repay the loan, in comes the next "want". Heady with the first experience, funding ever burgeoning wants soon turns into a habit and before you know it, a debt trap awaits you and you land yourself in it fair and square with bad loans that in turn feel like a bondage or slavery!

The moot point we are making is that it is not the loans that are bad, but one's disproportionate desires that lead to financial slavery. The bottom-line here is that anything does not build an asset for you should not be funded with a loan either bid or small. Thus loans to fund vacations, to buy consumer durables or going beyond one's means on a credit card is a bad idea and may sooner than later lead to financial slavery. This however does not mean that availing of all short term loans is a bad idea. For instance, if there is a medical emergency in the family a short term personal loan can bail you out. On the other hand, if you are planning an impromptu vacation with a personal loan you are better off saving for it rather than availing of credit line to fund the same.

The other kind of loan

If the loans as explained above are loosely categorised as "bad loans" are popularly known as personal loan for low CIBIL score, the next question you would obviously ask is what then are "good loans" and how is that they do not lead to financial slavery? Simply put, good loans are the ones that build an asset for you in the long run. Thus a home loan and a student loan can be categorised as good loans.

A home loan not only builds you an asset that you can cherish over the long term or leverage to get a larger property, it also gives you considerable tax benefits. A student loan too comes with a moratorium and needs to be repaid only after you get a job. This ensures that you avail of the opportunity to complete your higher studies in a stress free and a hassle free manner and also gives you the launch pad you need and can help you go from strength to strength.

As evident from the points stated above, bad loans are those that lead financially slavery, while good loans come with tangible advantages and even enhance your credit score in the long run. To answer the question whether you can lead a life free of financial slavery, the answer is yes, so long as you choose to use credit wisely.