there are good debts, and then there are bad debts. It is easy to spiral out of control if we get used to spending on today’s lifestyle with tomorrow’s income – something which is apparently becoming more and more common (Credit Bureau Singapore data showed that while credit card borrowing showed no significant variation, people in their 20s have been taking on increasing amounts of other debt since the second quarter of last year).
but the silent killer? Interest rates. Yes, again.
When you save, you earn a little interest (think 2%)
With debt, you buy what you want now, but end up paying a lot of interest (think > 24% for credit cards).
To put it simply, if you have loan of $10k that you are charged 24% for, you will have to repay ~$16k at the end of 2 years just to clear the debt. Or if you repay monthly, $528/month for 2 years – a total of $12,672.
So really, for your lifestyle expenses, save before you buy.
CFP, representing Financial Alliance 