It’s hard to say “No” when things are made easier for you to say “Yes”.
Take for example a typical day at the bank. You walk in for the purpose of paying your bills or getting a little bit of cash for the week.
Then an Account Officer approaches you:
“Sir, you qualified for our Cash Advance promotion. Only 6% per annum. You can borrow up to $15,000. No paperwork. Just let me know if you’re interested and I’ll open the credit line for you.”
The Account Officer lost you at “$15,000”.
From there, images of a vacation at the Bahamas or a Mediterranean cruise flashed in your mind. Or how about the home repairs that you’ve been putting off?
Once you say “Yes” to the Account Officer, you may be signing off your life savings and more.
Repeat after me: “Being in debt is a dumb way to create wealth”.
Getting a credit line is not creating wealth. Instead, you are digging yourself a debt trap.
The bank says, “It’s your money” even when it is not.
You don’t have the freedom to use “your money” the way you want to because of the interest rate that is factored in. Every time you draw from the credit line, you are charged interest.
People who buy into credit sooner or later find themselves mired in debt quicksand. They sink deeper and deeper into debt.
Some people borrow thinking they can pay for it in the future. They borrow money to invest in the equities market or buy property thinking they can repay the loan in the future.
“Need money? Open a credit line right away! Fast and easy withdrawals. Up to $10,000 available!”
But investments are speculative. Anything can happen.
All you need to do is remember the 2003 crash of the equities market. Banks made it easy to borrow money. People took out mortgages. Entrepreneurs financed businesses with loans.
In a global economy, what happens in one part of the world has a cascading effect across the globe. Uncertainties, volatility, and chaos created by 9/11, the Iraq invasion, and the threat of global recession affected demand and triggered economic slowdown the world over.
Businesses closed down. People couldn’t pay off their homes. Entrepreneurs couldn’t pay off their loans. Uncollected loans pushed lenders to bankruptcy.
Every time you take out a loan, you are increasing your financial risk levels. Nothing in life and business is certain. Business conditions can turn without warning.
The feasibility studies you made are merely projections. They are not predictions. When you take out debt for investment purposes, you are effectively putting a damper on any advantage or return that you have projected.
Don’t get tempted by easy credit. This is nothing but a short-term solution offered by banks and lenders which only serves their interests. The banks feed on your sense of complacency and impatience. They know your weaknesses and will exploit them.
The banks will not lose anything. At worse, they will settle or secure the collateral. You will be the biggest loser.
If you want to create wealth, put in the hard work. It may not be easy but that is how winners do it.