Let’s face it, since the 70’s we’re pretty much screwed. We are screwed for hundreds of years but this is not our concern for now.
Since then, some people/groups thought that it will be just a great idea to keep employees wages as constant at they can be, trow the consumption and production to galactic scale and make people take from banks or other institutions, the money that they don’t have, to buy things they don’t need.
This article is based on situations from Eastern Europe and may be different in your country (Please correct me if/where i’m wrong).
This is not a recipe to bypass the payments to financial institutions. If you take money from anyone and you are supposed to give in back in conditions agreed by you, give the money back!
- If you can’t afford to buy something don’t buy it. Stick to this as hard as you can!
- Keep loans in small amounts and for short periods of time and invest in things you can make money with. It’s actually 3 in one but the idea is small loans for short periods of time are cheaper even the installment is high. The longer the period of time, you will pay more then double the money borrowed. Loans should be taken to boost you activity/productivity and supplement temporary lack of money.
- Take loans in the same currency you are paid. Here, in Eastern Europe people took the bait for loans in USD, EUR, CHF because the interest was smaller then the loans in local currency but they didn’t see the catch: they can lose twice, first when the interest gets higher and second from the exchange rate that gets higher. For example: Romania 2008, you buy a house with a loan of amount A in CHF and not in RON and after around two years the exchange rate RON/CHF gets 30-50% higher, this results in your debt to the bank almost double. And i didn’t even talk about the bank raising the interest.
- Ask lots of questions about all the costs that a loan involves. Get all the costs on paper and take the time to do the math, you won’t believe how a subtle change can lead to very bad consequences.
- Save as much as you can and payoff current loans. Start with the smallest. If you think a little you will find enough things that you can cut paying in a month and raise that money to payoff loans.
- The use of credit cards. Some people find good offers for credit cards with the interest lower then some loan they have and payoff the loan and pay the interest of the card. In general, for credit cards, you can pay only the interest and not the principal. Remember this is not a very good option because you still have all the principal to pay, and it’s good for small periods of time when you can’t pay interest plus principal.
- Refinance loans. Do this only if you are very sure that the new loan is cheaper then the refinanced loan. Also try not to take extra money unless it is really necessary.
- Consolidation of loans.
- You just can’t pay it anymore. As i heard, in USA there is the Personal Bankruptcy but in some places it’s not. In Eastern Europe to be specific it’s a different story: You took a house loan in the A amount. The bank evaluated the house for 1,5 x A. Let’s say you can’t pay a house loan anymore, the bank sells your house for 0,7 x A and covers some part of the debt. For the rest they will attack whatever properties you have and if you don’t have any, they’ll sue you and get the rest of the debt from a fixed percent of your income and trust me, they won’t stop till you paid you debt. Think about this and figure out the best solution.
- Don’t be greedy! Human greed is exploited for huge profits. Don’t blame the banks for your mistakes and not thinking over and over before plunging yourself in huge debts but be aware of slight misleadings/omissions.
The bottom line is, think a moment why you should need new furniture every year, new car every 3 years or 3 new vacation houses when there are many, many more interesting and fulfilling things you can do for less?
Also the feeling of freedom and availability for anything you want to do, no strings attached, is way too great!