Debt costs money and thus can be good or bad depending on its purpose. The major problem is its repayment, but with proper management, one can repay a debt without a hurdle. Hanson, (2007) asserts that before a person can borrow or lend money it is important to evaluate the benefits and drawbacks that can accrue out of that debt. This is because if the loan is for starting a business does not have the same impact as that taken to fund a holiday.
People should consider borrowing after exhausting other options such as income, sale of shares and stocks, or liquidating an asset (Swart, 2002). Tracking ones spending before falling into debt is important. Besides, it would be worthwhile if one has more income avenues besides the securities pledged for the debt. Repayment period, interest to be paid and its computation means, and the security to be tight on the amount borrowed should be considered. The earlier a person repays a loan, the less interest they are charged (Swart, 2002). If there is an option for an interest-free loan it should be taken. Additionally, a lower interest rate is more apt.
Due to the rational nature of people, falling in debt is inevitable. Since credit is easy to obtain, many people will always have debts. People get into debt to gratify their wants. This encourages people to get what they want on credit and repay at a later date. Additionally, lack of financial education may make some people take loans. People also borrow to finance projects they could not have paid for Swart, 2002).
Helping a person if they are unable to repay their loan is good. This is because debt can cause ones assets to be auctioned for repayment purposes. If the debtor is a family member, bailing them out of the debt can save the family humiliation and unnecessary costs. Debt, in excess can cause a person to commit suicide, so it would be necessary to save the person’s life by repaying the debt (Hanson, 2007). A person applying for a debt should know the repercussion of non-repayment. This would enable them to take a manageable debt. The debt should not surpass ones income or total expenditure (Hanson, 2007).