What I Truly Learned About Loans, Debt, and Wealth After a Deep Discussion with a CFP
For a long time, I carried a very simple belief about money: if you want to become wealthy, you should avoid loans. This belief did not come from books or formal education. It came from watching people around me struggle with EMIs, stress, and financial anxiety.
But a recent, very detailed discussion with a Certified Financial Planner completely reshaped how I think about loans, debt, and wealth creation. What I realized is that debt itself is not the villain. The real danger lies in ignorance, emotional decisions, and misuse of borrowed money.
This article is not theoretical. It is a knowledge transfer of what I personally understood from that conversation. If you are someone who fears loans, misuses loans, or feels confused about whether debt can ever help you build wealth, this post is meant for you.
The First Mental Shift: Debt Is Not Good or Bad by Default
The CFP explained debt using an analogy that immediately made sense to me. Debt is like cholesterol in the human body.
There is good cholesterol and bad cholesterol. The body needs good cholesterol to function properly, but bad cholesterol silently damages health and eventually leads to serious problems.
Debt behaves in the same way.
- Good debt strengthens your financial position over time
- Bad debt slowly destroys cash flow and mental peace
- Too much bad debt can permanently damage your financial future
The problem is not debt. The problem is that most people never learn how to distinguish between good debt and bad debt.
The Three Questions That Should Decide Every Loan
One of the most important takeaways from the discussion was this: every loan must pass three filters. If even one filter fails, the loan becomes dangerous.
- Why am I taking this loan?
- At what interest rate am I borrowing?
- At what rate will this borrowed money realistically grow?
If the asset created using borrowed money grows slower than the interest you pay, the loan will slowly eat into your wealth. If it grows faster, the loan can compress time and accelerate wealth creation.
This simple framework alone can prevent most financial disasters.
Understanding How Banks Think Changed My Perspective
The CFP asked me a simple question: when you deposit money in a fixed deposit, what does the bank do with that money?
Most of us know the answer, but we never think deeply about it. The bank lends that money to someone else.
If you earn around seven percent on a fixed deposit, the bank lends the same money at fourteen or sixteen percent. The difference between what the bank earns and what it pays you is called the net interest margin.
This margin is how banks and NBFCs survive and grow.
The CFP made a powerful point: individuals should think like banks. Borrow cheap. Deploy money into assets that grow at a higher rate.
Why Home Loans Are Considered the Most Efficient Debt
Among all retail loans, home loans stand out as the most efficient form of borrowing.
Home loans typically come at lower interest rates compared to personal loans or credit cards. They also come with long tenures, which keeps EMIs manageable.
But the biggest advantage is this: you live in the asset while paying for it.
In addition, a residential property usually offers two benefits:
- Capital appreciation over time
- Rental income that partially offsets EMIs
When appreciation and rental yield together exceed the home loan interest rate, the loan becomes productive. This is why home loans are often classified as good debt.
What Most People Get Wrong About EMIs
One misconception I had earlier was that EMIs are purely expenses. The CFP corrected this thinking.
An EMI consists of two parts: principal repayment and interest. When you pay an EMI on a home loan, you are not just spending money. You are also converting cash flow into ownership of an asset.
This does not mean EMIs should be taken lightly. It means they must be understood correctly.
The Real Danger: High-Interest Unsecured Loans
The CFP was very clear and firm on this point. Credit card loans and high-interest personal loans are among the most destructive financial instruments for individuals.
Credit card interest can range from thirty-six percent to nearly fifty percent annually. Personal loans may range from twelve to twenty-four percent.
No regulated investment can consistently generate returns high enough to justify borrowing at such rates.
Using such loans for lifestyle expenses, speculation, or investing is not financial planning. It is gambling with borrowed money.
A Practical Interest Rate Framework That Made Sense to Me
The CFP shared a very simple framework that anyone can remember.
- Above twelve percent: bad loan
- Eight to nine percent: acceptable loan
- Around seven percent: excellent loan
Interest rate alone does not decide everything, but it is the first and most important filter.
Examples of Good Debt Based on Real Observations
- Home loans for self-occupied property
- Home loan top-ups used carefully
- Education loans that increase earning capacity
- Gold loans with controlled interest rates
- Business loans backed by predictable cash flow
What I noticed is that all good loans share one thing in common: they either create assets or increase income potential.
Examples of Bad Debt That Ruin Lives Slowly
- Credit card rollovers
- High-interest personal loans
- Loans taken for weddings or luxury consumption
- Speculative land purchases funded by EMIs
- Loans taken without understanding repayment capacity
Bad debt does not always hurt immediately. It hurts slowly, quietly, and persistently.
The Most Common Mistake: Misusing Loan Purpose
One of the most dangerous behaviors discussed was misusing loans.
Loans taken for one purpose are quietly diverted to something else. Business loans fund weddings. Home loan top-ups fund speculative land purchases. Personal loans fund trading accounts.
This mismatch between loan purpose and asset quality is where financial stress begins.
A Real-Life Lesson: Income-Generating Asset vs Emotional Attachment
The CFP shared a real case that stayed with me. A person owned an apartment that generated rental income and a plot of land that generated nothing. Due to stress, he wanted to sell the apartment.
The logic was flawed. The apartment produced income. The land did not. The land also had legal complications.
The CFP asked a simple question: if you need money, will you sell the cow that gives milk or the buffalo that gives nothing?
This analogy made the mistake painfully clear.
Assets Should Work for You, Not the Other Way Around
This was one of the strongest lessons for me. Assets are meant to serve your life. Your life is not meant to serve assets.
When people take bad loans to hold on to emotionally valued assets, they often sacrifice peace of mind, relationships, and health.
Emotion should be for people, not assets.
If Debt Grows Faster Than Assets, Ownership Is an Illusion
This statement was uncomfortable but true. If the interest on your loans grows faster than the value of your assets, you do not truly own them.
One shock—job loss, illness, or economic slowdown—can wipe out everything.
This is why high-interest debt must be eliminated aggressively.
How to Exit Debt Intelligently
The CFP emphasized that exiting debt requires strategy, not panic.
- Repay the highest-interest loans first
- Consolidate multiple loans into a single low-interest loan
- Use home loan top-ups strategically to reduce EMI burden
- Reduce financial stress before chasing returns
Why Low-Income Earners Should Focus on Income First
This part of the discussion was eye-opening. For individuals earning twenty to twenty-five thousand per month, forced investing can do more harm than good.
A single hospitalization can wipe out years of savings. Insurance itself becomes difficult to afford.
The CFP’s advice was clear: income growth must come before investment.
- Upskill continuously
- Change roles or industries if needed
- Relocate if better opportunities exist
- Protect income with insurance first
Insurance Is Not Optional for Low-Income Households
For low-income households, insurance is not an investment decision. It is survival protection.
Investment can wait. Financial protection cannot.
The Final Lesson I Took Away
Loans are neither good nor bad by default. They are tools.
Used wisely, they compress time, accelerate asset creation, and provide stability. Used carelessly, they destroy peace of mind, relationships, and future choices.
The biggest change for me was this: I stopped fearing loans and started respecting them.
Plan loans logically. Use assets intelligently. Never let bad debt steal your sleep.
