A few years ago, a dear friend of mine told me about the house he had just bought in Australia. It was a bungalow. He had taken a home loan of about one million Australian dollars, roughly Rs 5 crore, to buy it. He was 45 years old at the time. Then he told me that he would be able to finish repaying it only by the age of 70.
I had recently come out of the Navy, and I was about to finish paying off two home loans of my own. I remember feeling restless as I listened. A loan that would run well into his seventies, taken at an age when I was trying to get rid of mine, felt almost alien to me. I have always been wary of debt, and especially of taking it on late in life.
But my friend was no fool, and he had thought it through in his own way. He was simply wired differently from me.
That conversation made me curious, and I have been watching people's relationships with debt ever since. I have met people who will not borrow a rupee under any circumstances. I have met people who borrow heavily and sleep soundly. And I have met many who do not seem to have decided anything at all, and have simply drifted into debt one EMI at a time.
I have come to believe that there are no absolute rights and wrongs here. But I also believe that some relationships with debt lead to a healthier and happier life than others. This article is my attempt to sort out which is which.
Where our relationship with debt comes from
Nobody is born with an attitude to debt. We absorb it.
For many of us, it begins at home. A child who sees parents anxious about a loan, or who hears that "a debt-free life is the only safe one," will often carry that fear into adulthood. A child who sees parents use a loan to build something, and repay it calmly, may grow up seeing debt as an ordinary tool.
Generation matters too. In India, people of my parents' generation often regarded a loan as something close to a shame, to be cleared as soon as possible. Many took pride in retiring without any debt. Younger people today grew up in a world of easy credit, instant approvals and monthly instalments for everything from phones to holidays. For them, an EMI is a normal part of life.
Personal experience shapes us most of all. Someone who has seen a business fail, a job vanish or a family lose a home because of unpaid dues will be wary of debt for life. Someone who borrowed, built something valuable, and repaid it comfortably may come to see borrowing as the engine of progress.
The seven relationships with debt
In my observation, most people fall broadly into one of seven patterns. Most of us are a mixture, but we usually lean one way.
1. The Avoider
The Avoider is deeply uncomfortable with any debt. Not a car loan, not a home loan, certainly not a credit card balance. Everything is bought with cash, and if the cash is not there, the purchase waits.
There is real wisdom in this. The Avoider sleeps well. He is never at the mercy of a lender, and an interruption in income doesn't bring the extra burden of instalments. He tends to build savings, because he has no choice.
The cost is subtler. The Avoider can miss opportunities where borrowing would have been sensible, such as a home in a rising market, a loan for a business that would pay for itself, or an education that would raise his income for decades. Some Avoiders end up keeping large sums idle, or paying off cheap loans early at the cost of liquidity they might one day need. At the extreme, the avoidance becomes a form of fear, and fear is not a financial strategy.
I lean towards this camp, and I know it. I should be honest that it comes at a price.
2. The Leverager
At the other end is the person who sees debt as a way of multiplying wealth. Why use only your own money, he asks, when the bank will lend you more? A bigger house, an additional property, a larger business: the Leverager borrows to the limit that the lender will allow, on the assumption that the asset will rise in value and that inflation will shrink the real burden of the loan.
This is exactly the logic that has built a great deal of wealth in the world. Used with care, leverage works. Inflation does erode fixed debts over time, and an appreciating asset financed by a loan can produce returns that cash alone could not.
But the Leverager is making a bet, and a bet has a downside. If income falls, if interest rates rise, if the asset's value stagnates, or if a crisis hits at the wrong time, the same loan that was a lever becomes a weight. People who have used leverage skilfully tend to keep large buffers, and the ones who run into trouble usually did not. The danger is not borrowing. It is borrowing with no margin for error.
3. The Drifter
The Drifter has not really decided anything. He has simply said yes, repeatedly. A phone on EMI. A car loan because the showroom offered a low down payment. A personal loan for a holiday. A credit card used for everything, with the balance carried forward.
Each decision looked small. Together, they take a large share of monthly income, and the Drifter often does not know the total. This is the most common pattern I see among salaried people, and the most damaging, because it is invisible. Easy credit and the "No Cost EMI" culture make it simple to forget that every instalment is a claim on your future income.
4. The Status Borrower
The Status Borrower takes on debt not because he needs the thing, but because of what it says about him. A larger car, a better address, an expensive wedding, a lifestyle that matches his neighbours'. The loan buys an image.
I have written about the comparison trap, and this is where it does its worst harm. The debt in this case buys no income and no real security. It buys approval, and the approval fades quickly while the instalments continue for years.
5. The Ostrich
The Ostrich is a person in debt who cannot bear to look at it. Statements go unopened. Calls from the lender go unanswered. The number is never added up, because the total is too frightening.
Behind this is usually shame. But avoiding the facts only makes things worse, since interest keeps running whether or not we look. People who face their numbers early, even when the numbers are bad, almost always do better.
6. The Family Banker
This pattern is very Indian, and it causes more quiet distress than most people admit. The Family Banker is the person in the family who is seen as the one who has "made it." So when a brother needs money for a business, a cousin for a wedding, a nephew for admission fees, or a friend for a medical bill, the Family Banker is the one who is asked. Often, he is also asked to stand guarantee for someone else's loan.
It starts from the best of motives: love, duty and the feeling that if you can help, you should. Saying no feels like a betrayal, and in many families it is simply not an option.
The danger is that the arrangement is unlike any other form of debt. There is rarely a written agreement, an interest rate or a repayment date. Repayment depends on goodwill, and when it doesn't come, asking for it can damage the relationship. A guarantee is even riskier. In law, a guarantor is generally as liable as the borrower if the loan goes unpaid, so a signature given in a moment of goodwill can become a debt of your own, and it may also affect your own ability to borrow. Many families have been strained for years by exactly this.
I would say two things in defence of the Family Banker. First, helping family is one of the good things about our culture, and I would not want it to disappear. Second, a safer way to do it exists. Lend only what you could afford to lose, and think of it as a gift that might one day be returned. If you do lend, say so plainly and put it in writing, even for a close relative, because clarity protects the relationship. And think very carefully before guaranteeing anyone's loan. It is the one commitment where you take all the risk and none of the benefit.
7. The Strategic Borrower
The Strategic Borrower treats debt neither as an enemy nor as a friend, but as a tool with a cost, a purpose and an exit. Before borrowing, he asks several questions. What is this loan for? Will the asset or skill it creates outlast the loan? Can I afford the instalments even if my income falls? When will it end? What will I do if something goes wrong?
He borrows when the answers are good and doesn't when they are not. He may hold a home loan comfortably and refuse a car loan, or avoid all consumer debt and use a loan for a business. His attitude is not fixed. It is calculated.
If I had to pick a model, this is the one I would hold up. But I will add that even strategic borrowers need to be honest about their own temperament, because the best plan on paper is no use to a person who cannot sleep with it.
What my friend and I were really betting on
Let me go back to that conversation, because I think it shows the difference between the camps better than any theory.
When my friend took a loan of Rs 5 crore at 45, to be repaid by 70, he was making a set of bets. That his income would continue and probably grow. That he would stay healthy and employed for most of the loan's life. That interest rates would not rise to punishing levels. That the house would hold or increase its value. And, quietly, that he would be able to handle whatever came up along the way.
When I felt restless, I was making a different set of bets, or rather refusing to make them. I preferred to give up some opportunity in order to carry no risk that I could not see the end of. I wanted the loan to finish before my earning years did.
Neither of us was wrong. We were pricing risk differently. For him, the extra wealth and the better home were worth the exposure. For me, peace of mind was worth more than the extra return. Both are legitimate choices, as long as they are made with open eyes.
But a few questions apply to both of us, and to anyone with a long loan:
What happens if my income stops or falls sharply at 55 or 60?
What if the interest rate is two or three percentage points higher than today?
Do I have enough savings and insurance that my family could cope if I were not here or not working?
Does the loan end before my regular income does, or after?
The last question matters more than any other. A loan that ends while you are still earning is a plan. A loan that runs past your earning years is a hope that you will manage to earn longer, or that the house will be sold, or that your savings will do the work. It may well work out. But it depends on things you do not control.
I do not know all the details of my friend's finances, and I would not judge them. For all I know, his plan is entirely sound. The point is that what looked foolish to me and sensible to him depended on the facts of his life, his income, his savings and his comfort with risk. A relationship with debt can only be judged against the person who holds it.
A better test than good debt and bad debt
People often divide debt into good and bad. A loan for an asset that grows in value, like a home or education, is good. A loan for consumption, like a gadget or a holiday, is bad. As a rough guide, this is helpful. But it has weaknesses.
A home loan can be a bad idea if the instalment swallows half your income. A business loan can be a disaster if the business depends on a single customer. And a small personal loan for a medical emergency may be entirely sensible, even though it creates nothing.
I find the following questions more useful than the labels.
Does it have a purpose? Debt that is tied to something specific, which you can name and which has value, is different from debt that has accumulated.
Does the thing last longer than the loan? A holiday, a phone or a wedding is gone long before the instalments end. A house, an education or a productive business can outlast the loan. The shorter the life of the thing, the shorter the loan should be, and ideally there should be no loan at all.
What does it cost, honestly? Interest rates differ enormously. A home loan is usually among the cheapest debts available. Credit card balances carried forward and some instant personal loans can cost many times more, often well above thirty per cent a year. The same word, debt, covers things that have little in common.
Can I survive the bad case? Imagine your income falling by a third for a year, or the interest rate rising sharply. If the loan still works, it is robust. If it does not, it is fragile, however attractive the good case looks.
Does it let me sleep? This is the test I take most seriously, and I want to say more about it.
Debt and sleep
There is a human side to debt that spreadsheets do not capture. Debt is a promise about the future, and promises can weigh on us.
I have written about the year before I left the Navy, when I woke up in the middle of the night worrying about money. I can tell you from that experience that the same financial position can feel entirely different depending on how it is structured. A fixed obligation, due every month regardless of what happens to your income, increases the stakes of every uncertainty. When income is stable, that pressure is manageable. When income is uncertain, it can become unbearable.
This is why the sleep test is not trivial. Financial planners often talk about risk tolerance as a number. But the real measure is simpler: can you carry this obligation without losing your peace? If you lie awake over a loan, then however logical it was on paper, it is too heavy for you. And if you sleep well with a loan that frightens other people, that is real information about you too.
There is a difference between a risk you can afford and a risk you can stomach. A healthy relationship with debt satisfies both.
What a healthy relationship with debt looks like
Having thought about it for some time, here is what I would describe as healthy. These are principles, not rules, and the right numbers depend on your own life, so please treat them as a starting point to discuss with an adviser.
You treat family lending as a gift, and you avoid guarantees. Lend to relatives only what you could afford never to see again, put any loan in writing, and think very hard before standing guarantee for anyone. A guarantee is your own debt in waiting.
Debt serves a purpose and ends on a date. You can say what each loan is for, and when it will be gone. If you cannot, you are a Drifter.
The loan ends before your income does. For most people, this means planning to be free of major debt by or before retirement. Where a loan must run longer, there should be a clear and credible plan for how it will be repaid, not a hope.
Repayments leave room to breathe. Many planners suggest that total monthly repayments should stay within roughly a third to forty per cent of income, though the right level depends on your circumstances. If repayments leave no room for savings, a bad month becomes a crisis.
You hold a buffer before you borrow. An emergency fund covering several months of expenses, including instalments, is the shock absorber that keeps a loan from becoming a danger. The same applies to insurance. Adequate term cover and health cover mean that a loan does not pass to the family if something happens to you.
You stress-test the loan. Before signing, ask what happens if your income drops by a third, if rates rise by two or three points, or if you lose your job for six months. If the answer is bearable, proceed. If not, borrow less or wait.
You never borrow to speculate. I wrote recently about greed in the markets. Borrowing to trade or to buy a hot stock turns a temporary loss into a permanent one, because the loan stays even when the money is gone. Leverage and greed are a dangerous pair.
You know your numbers and look at them regularly. Keep a simple list of every loan, its interest rate, the instalment and the end date. Review it every few months. This single habit protects against the Drifter and the Ostrich alike.
You think about prepayment as a decision, not a reflex. There is a real debate here. If the interest rate on a loan is higher than what your money would reasonably earn elsewhere, prepaying makes sense. If the rate is low, investing the surplus may do better. But peace of mind has a value that the arithmetic misses. Many people, myself included, take comfort in being free of a loan, and that comfort is a legitimate part of the calculation.
Debt at different stages of life
The right relationship also changes with age.
Early in a career, income is low but growing and the time horizon is long. Debt for education or a first home can make sense, but fixed obligations also limit your freedom to take risks or change careers. In mid-career, when most large loans are taken, be careful about stacking one loan on another, and build the buffers that will carry you through.
Close to retirement, the picture changes. Income is about to fall or stop, and the ability to absorb a shock is smaller, because there are fewer years in which to recover. That is why I have always been wary of carrying heavy debt into later life. The closer you are to the end of your earning years, the more carefully a loan has to be justified.
In retirement, a debt-free life gives a particular kind of calm. I would not call it a rule, but I do think it is a goal worth aiming for.
Ballast
I will end with an image from the Navy.
A submarine uses ballast. It takes water into its tanks in order to dive, and by controlling the amount, the crew controls how deep the boat goes. Without ballast, the submarine cannot do its work at all. But the crew is trained to remember something else: they must always be able to blow the tanks and surface when they need to. Debt is a little like ballast. A measured amount lets you do things you could not otherwise do, like buying a home, building a business or educating a child. But you must always be able to surface. That means having savings, insurance, a loan that ends before your income does, and enough room that a bad year does not sink the boat.
My friend and I have different ideas about how much ballast is right, and I do not think either of us is mistaken. What matters is that each of us knows our own boat, knows our own depth limit, and keeps a way back to the surface. If that is true, then whether your relationship with debt is cautious or bold, it can be a healthy one.
Disclaimer: This article reflects personal views and experience for educational purposes only. It is not financial advice, and it is not a recommendation to borrow or to avoid borrowing. The right level of debt depends on your income, family, goals and temperament. Please consult a qualified financial planner or adviser before making borrowing decisions.