Purifying Your Wealth: Loans and Debts.. The start of...
Published: Tue, 08/04/20
Purifying Your Wealth
Assalammualaikum wr wb,
We hope you are well and in the best of health and iman. May Allah swt continue to bless your family and your life with His mercy and rahmah.
Last week, we shared some thoughts about credit cards and why you should consider cutting it away despite the many rewards it provides. Refer back to this article here.
This week we will like to talk about loans and debts.
Loans and Debts
Loans refers to borrowing money from a lender.
Example
When someone borrows money from a bank, he is borrowing money for a certain period of time. Or when you swipe that credit card, you are borrowing money from the bank to pay to the merchant. So the bank will upfront the payment first and you have to pay later.
Then what is Debts?
Debt happens when one cannot pay off that loan. Then it becomes a debt. In many cases today, when debt happen interest are added on each time the debt is not paid.
Are we allowed to take loans?
In Islam we are allowed to take loans. In some cases, it's necessary.
Example House Loans. Due to the housing costs, loans in this case are necessary. It's part of our survival, we need a roof over our heads right?
There are other cases where loans are not necessary at all.
Example. Purchase of small appliance such as TV or even rent a car.
Rent a car? Last year we had a debt consultant that shared with us about his client who went into bad debt by starting to take a loan to rent a car for Hari Raya. It was a small loan of $200 for 4 days car rental. Eventually his client could not pay because he was only working part time and had to borrow from another money lender and this led to multiple money lenders and Ah Long. After which it became very bad. The debts snowballed with interest up to $10,000. So is it necessary
to take up such loans in the first place?
This may sound like a silly example but the cases mentioned above is real. In fact many out there are having this problem of clearing loans during this period.
Is there a strategy around these issues. Yes. Of course there is.
Firstly we need identify whats necessary and whats not?
Let us test you.
1) Home loan necessary? Yes or No?
2) Renovation loan necessary? Yes or No? Depends?
3) Car loan necessary? Yes or No? Depends?
Every single one of us will answer the above differently. We have different needs and wants.
But what makes someone who is debt free or have little loans to another person who is in debt or have to take a loan all the time?
Financial Planning, Management and Literacy.
The key here is financial planning and management. We are not talking about buying that life insurance plan to save for 20 years. Life insurance are also questionable as it has interests generated.
What really matters is how you manage your current income. Is there a plan to save up for that house renovation? Is there a plan to pay the wedding expenses? Is there a plan to clear the housing loans in 10 years instead of 20 years. With all these savings, are you still happy?
With Covid-19 going its even more important to be mindful on what we are spending on.
Thats all for todays sharing.
So we hope to see you in the upcoming Zoom Seminar - Purifying Your Wealth. May Allah swt continue to provision us with knowledge to handle such matters.
