Martin is a newly-wed working class young man. A few months back, the Kigali resident acquired a bank loan to finance his wedding to longtime sweetheart Uwase. Everyone at the reception was impressed by the glamour and magnitude of the event that was also characterised by colour and pomp.

Their wedding became talk of town, but that was the only ‘payback’ for Martin as he never came close to the Rwf5 million he had hoped to raise from guests. Unknown to them, Martin had acquired a short-term loan to finance the wedding. That marked his troubles as he was hounded out of his honey by the bank reminding him to start depositing repayments. 

Like Martin, many corporates secure credit to fund activities that do not create wealth or build asset base and portfolios, but rather to finance consumption. This often plunges them into huge debt that hurts their financial health.

Borrow for wealth-creation

Remember, banks are always banks ready to give you money if you meet the requirements, but watch out: credit to fund consumption habits, even at the lowest interest rate, is not good for you. The goal should always be to borrow so that you create more wealth and strengthen your financial muscle and broaden your asset portfolio.

Therefore, borrowing to buy a vehicle just ‘to fit in’ is a bad idea as it could mean the start of a borrowing cycle and dependency on loans. Besides, it’s against the goal of creating new wealth as it will be spent in unproductive activities, like funding birthday parties or entertaining friends. These will obviously cripple your wealth-creation and financial stability goals, both in the short or long-term.

So, buying a car due to peer pressure, throwing birthday parties for friends or even family members when you don’t have the means, will only exacerbate your financial woes. They should always be limited or avoided for the simple reason that they do not improve your financial health but rather make it worse.

Don’t be enticed by low interest rates

Next time your bank presents you attractive loan products, think twice, and avoid the temptation presented by their low interest rates or long repayment periods. They could be the beginning of the debt trap that will ensnare you for years. Walk away from marketers with ‘irresistible’ offers.

The principle should always be to borrow only if you must, which is when you are going to invest in wealth-creation undertakings and not to fund luxuries and other things one can always avoid. You don’t want to be hounded out of your honeymoon by debtors, borrow smart and for purposes of building assets.

As a working class Rwandan, remember to invest first and consume whatever remains on your monthly salary. When it comes to credit, never use money meant for investment to acquire luxury items that don’t increase in value over time.