Give a dog a bad name and hang it. That's how debt gets treated by most consumers in India. But not all debt is bad-just like not all debt is good. In fact, with interest rates softening, this may just be the time to buy that house or car you've been eyeing for a while now. By the way, stay off those usurious personal loans; you might as well take a gun and shoot yourself in the foot.

By Shilpa Nayak

The Good:

Home Loan: Don't even think about it, just go in for one. Home loan should rank right on top of your priority list for several reasons. For one, it allows you to build a house, enhancing the security and stability of your personal life. Then, it saves you from escalating rents and the trouble of having to shift houses every year. But the best thing about home loans is that they give you tax breaks. The bonus? Even as your pay-out remains constant over the years, the market price of your property keeps going up. And property, although it's a fixed asset, is highly liquid.

Car Loan: You owe this to yourself and your family, especially considering the hour-long commute that most office-goers these days do. Sure, the value of your vehicle will sink like a stone, but this loan is about a different kind of investment: your comfort and social status. And to hear a young executive say, ''Since we earn in installments, what's wrong with buying a car on installments?'' True enough. And if you are a self-employed professional, you can even claim depreciation and interest on the vehicle (both as expenses).

Personal Loan: Most banks will give personal loans as much as Rs 1.5 lakh to Rs 2 lakh to middle-level executives earning between Rs 4 lakh and Rs 5 lakh per annum, without asking too many questions. The pay back period for personal loans is usually three years. As long as a personal loan is used to buy something useful, say, a computer, or invest in something productive like higher education, it is justified. But unless you have moron written on your forehead, you'd think twice about using this expensive loan (22 per cent a year) for a jaunt in Switzerland or buying that cool home theatre system you only use on Sundays.

The Bad:

Consumer Loan: Consumer debt exceeding a certain limit can be dangerous. If you think you just handle the itch in your wallet, don't, but choose a debit card over a credit card. The former allows you to spend only if you already have money in your account. The other perfidious plastic will allow you to sin excessively. When you make a purchase or pay a bill through a debit card, the amount is automatically charged to your account. Hence, that feeling of having extra cash at hand (a false comfort credit cards give you) doesn't arise.

That said, don't trash your credit card yet. Debit cards are great for small-value purchases (Rs 800 to Rs 1,000). But if you are reasonably financially disciplined, then it makes sense to buy more expensive items on credit, so that you can take advantage of the grace period. Of course, you must pay off the entire outstanding on the bill to avoid the notorious credit trap. Notes Pushpendra Mehta, Senior Consultant, Credit Card Management Consultancy: ''If used appropriately, debit cards and credit cards actually complement each other.''

Borrowing Against Life Insurance: Borrowing against life insurance can work out cheaper than other commercial borrowings. But don't use this facility frivolously, because if you pass away without paying off this loan, not only will your family be saddled with the debt, but it will also receive lesser amount against your insurance policy. Ideally, you should avail of this loan only when there's an emergency-say, the construction of your new house is stalled because of a cash crunch.

Borrowing Against Provident Fund Account: The provident fund should be one of the last piggy banks to dig into, and should be reserved only for extreme urgencies like a medical emergency, college donation, or accident. Typically, provident fund is something you should be able to cash in when you retire. No point raiding this nest egg early in your career.

Loans Against Shares/Investments: You can leverage your investments if you happen to be a long-term investor and need some funds for a short period. In such cases, the leveraged amount should be paid back at the earliest, since the lender has a lien on the securities. But, be warned that the rate of interest could be on the higher side, especially if you are borrowing from informal sources.

The Ugly:

Unsecured Personal Loan: The ugliest possible debt is borrowing to bet your shirt on the stockmarket. Remember: when you borrow and take a call on the market, it's not your money, but that of the lender that you are wagering. Such loans normally have a shorter tenure and, typically, are unsecured. That means you either borrow from a friend, a broker, or even your employer, and have to pay back in a relatively short period of time-like a year or two, at the most. That apart, the rate of interest could be obscenely high as 24 per cent a year.

Borrowing Against Your Home: Avoid using your home to borrow against, especially for speculative purposes. Remember: it is your shelter that you are putting at risk. In case you falter on the payments, there is a danger of losing the house. Try never to use this option. Like Publius Syrus said, debt is the slavery of the free. Make your choices with care. 
  

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