KETVI ROOPNARAIN
Anou koz kas. Anou koz det.
Pri nek pe monte, ena mwins kas pou viv.
Nou tou strese.
Anou reflesi lor nou ban priorite.
The Bank of Mauritius’ Financial Stability Report revealed that household debt as a share of the economy was 28% in September 2021. 67% of this debt was housing related with the third remainder for other purposes such as loans for vehicles and higher purchase items.
Too often behind the big houses hide high mortgages. With conspicuous spending come high levels of credit card debt, and the shiny new cars from a personal loan or onerous car financing.
When you borrow money you build up debt. Nobody gives you anything for free. The price we pay to use someone else’s money is that we need to pay them back, more than what we borrowed, at a later date. This is generally the original loan amount plus interest. 
Debt can be short term or long term. Short-term borrowing is often used to fill an income gap between paychecks or for emergencies. Long-term borrowing often spans multiple years and is used for more expensive purchases such as a house or funding higher education. Loans can be informal or formal. Informal borrowing is when we borrow from family or friends. Formal borrowing is through financial institutions like the bank, cooperatives and building societies. In recent years, technology has blurred the lines between these distinctions with fintechs like FinClub and Fundkiss offering peer to peer lending in Mauritius.
Traditionally, we view debt in a negative light. We fear living in the red and the weight of having the banker on your back. Owing money can mean being afraid to leave a horrible job because of impending bills and repayments each month. If we miss a repayment, debt can snowball with devastating consequences. However, when used correctly, debt can help us grow our wealth faster. With any financial product, it is important to get things right. This is where the concept of good versus bad debt comes in.
In an ideal world, we would have zero debt. But life doesn’t work that way. It is unrealistic to be able to afford, say a Rs 3m median home in cash, on an average monthly salary of Rs 33,767. Instead, pou fer enn progre, you look for the banker with the sexiest mortgage, and ask them to get into a 20-25 year relationship with you and then like a newlywed couple, you and the bank buy a house together. You put in say 20% deposit of the purchase price and the bank agrees to loan you the 80%. You then repay the bank as fast as you can so that the house is all yours someday in the future. That is good debt. That is you, my friend, using the banks’ money to make more money.
Good debt helps us grow our net wealth or generate income. Typically good debt is when we use leverage for assets like quality real estate which typically grow in value and therefore help us grow our wealth. It is important to not over-extend ourselves when getting into debt. To avoid mortgage stress, a typical benchmark for mortgage repayments would be no more than 30% of your monthly salary.
Bad debt is money owed for things that lose value over time. One example is buying a car we can’t afford. It isn’t enough to consider the ticket price of say Rs 500,000 for the car. We need to factor in the lease repayments, interest charges and setup fees as well as running costs like servicing, insurance, fuel and parking to the budget. Bad debt is also using a credit card for discretionary purchases. Mobile phones, clothing, watches, bags, shoes, anything that we buy akoz dimounn ki pou dir is spending, pure and simple, not an investment, because they depreciate and lose value over time.
Let’s focus on spending money on what makes us money. Let’s only harness the power of debt to invest in wealth growing initiatives.
Three questions before considering getting into debt:
1.Do I really need this?
If the answer is no, move along. If it is essential but not urgent, consider building a savings buffer to afford the purchase. If it is urgent and essential, then find the least expensive way to borrow.
2. If I need to borrow to buy this, is this good or bad debt?
Especially if it’s bad debt, make sure you understand all costs involved and have a plan of how you’ll reimburse it as soon as possible.
3. Can I afford this?
A good stress test is if interest is variable, and my loan repayments rose by 5%, would I still be able to repay this and maintain my lifestyle?
If you are currently struggling with debt, contact your bank or credit provider early to work out debt restructuring options. Other resources are L’Association pour la Protection des Emprunteurs abusés, the Commission for Borrowers Protection and the Consumers Advocacy Platform. Did you know you can request your credit information by contacting the Mauritius Credit Information Bureau?
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“Mo roul enn Toyota Corolla 2013 me kan mo park loto gramatin, zot tou ena BMW, Audi, bel-bel 4par4. Mo feel mo bizin aste enn nouvo loto akoz mo enn manager aster. Ki mo bizin Consider? Rajeev, 36 zan”
Merci to koz enn super topic Rajeev. Enn loto akoz li depresie, zeneralman li pa enn bon investisman. An bref, si to kav zer depans roule to nouvo loto, go for it. Sinon, si Toyota la amen toi A ziska B san traka, avoy lezot manze; evit kastet depans pou enn nouvo loto. Plito servi kas la amen lafami enn ti voyaz, lwe enn bel loto pou ene wiken ek investi leres; ki to dir? Enn zour zot pou bliye nimero plak loto me souvenir voyaz-la pou reste toultan!”
Share your money questions via anoukozkass@gmail.com or @mauritiusmoneyandme.
Disclaimer – Information in this column is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute financial advice. Before making financial decisions, consider seeking independent financial advice tailored to your individual needs.