Why do some people take loans?  Is taking a loan a good thing? Or it is bad?

We enter into debt because we may not have sufficient savings?

Sometime, we borrow because we simply don’t want to use all of our savings.

Most of us borrow to buy a house or a car as we do not have such large savings.

We repay the loan in small instalments over a long period of time which we can afford and help us have a roof over our head without too much pain.

Some people borrow for funeral costs, wedding expenses, holidays or even clothes and food.  They either take a personal loan or use their credit cards.

Interest on personal loans or credit card are normally much higher than secured loans for cars and houses.

There are some people who go and borrow money from money lenders where the interest rate is extremely high and the term of the loan is short.

Banks normally assess any application for loans by individuals based on their ability to service their loan.

This means that they have sufficient income after paying for the daily needs to make their loan repayments.

When a bank declines your loan application, it simply means that you do not have the means to repay your loan.

It is therefore important that we manage our debt as failure to repay your debt may result in re-possession of property, vehicle etc., bankruptcy, which can lead to reputational loss.  Hence,

To manage your debt, a crucial factor to taking control of your finances is “discipline.”

Below are a few tips to manage your debt and this will enable you to gain control of your finances:

nThe most important tip is to plan a budget for yourself so you know where and how you will be spending your income before receiving it.  nThis is the best way to take control of your money and make changes to your financial situation.

nStop paying interest, try and pay off your bills as quickly as possible to avoid interest charges, when you are not paying interest, you can save some money.

nMake it a priority to stop using your credit cards and keep it only for emergency purchases.  A way to do this is to stop carrying your credit cards.

nWrite down all your spending for at least a week, so you are aware how your money is spent and you may begin to categorize your spending and identify areas that you can cut.

nSet up automatic transfers to savings on each pay, this is the simplest way of avoiding unwanted debt, by preparing for unexpected expenditures or rainy days.

As at the end of September 2016, commercial banks outstanding loans to the private sector was $5.8 billion.

Of this, loans to private individuals was $1.8 billion.

When compared with the end of 2011, the total loans outstanding by the private sector was $3.1 billion, while the loans outstanding from private individuals was only $861 million.

The bulk of the loans to private individuals is for housing and at the end of September 2016 stood at $1,225 million while that for car or personal transport was $131 million.

Personal loans for purpose other than housing and transport was $424 million.

This does not reflect the full picture on personal loans as individuals also borrowed from the licence credit institution totalling $93 million.

In addition, there are loans from hire purchase companies, money lenders, brothers, friends and families.

nThis is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at the HFC Bank, Peter Fuata.