Don’t have money to buy your mother a special birthday gift? Or to go on a date with your girlfriend? With MoneyTap its quick and easy, get an instant loan from Rs 3000 to Rs 3 lakh.

Something like this is what the advertisement for this instant loan platform says. All you have to do to get some quick money is download the app on your versatile smart phone, fill in some personal details, upload a picture and voilà you now have the means to gift your mother an expensive phone or take your family on the dream luxury vacation.

Recently, someone introduced me to another app called EarlySalary which does something similar but links the loan amount to your monthly salary. Without doing much more than a few finger-taps on your phone, you can advance your spending every month before you actually earn the money.

Yes, when corporates take loans it helps them better their return on equity and get a good valuation. But does it work similarly for individuals? Does piling on debt to fund your expenses give you a good valuation? Not really, corporates borrow to invest in their business and not to spend.

Step 1 – do not borrow

A wise financial advisor will say, stay away from debt and enjoy your life. That is of course the best advice you can get. Credit makes you feel like you are stretching your money and the interest cost is the small price you pay for it. However, what it is really doing is making you spend beyond your means. Making you buy things which you can’t afford today. Maybe with next month’s salary, but not today.

However, desires driven by extreme consumerism don’t hold us back from over spending. Plus, ever rising costs sometimes make it hard to save much for contingencies that can arise without calling out.

If you must spend beyond your means – whether because of a necessity or frivolity – make sure you make it a habit to repay on time even if the loan is interest free. The longer you extend the period, the more your liability to pay increases. Even with credit cards if you extend beyond your payment date – there is a late charge, interest charges and now GST on all of it.

Repaying on time not only saves you money, but it also helps you create a good credit profile for future when you may want to take a larger loan to say buy a house or invest in your business. Just like with a bank loan or a credit card debt, data from instant loan apps goes to credit bureaus that compile your credit score.

Banks have now evolved their processes for loan disbursement. No longer is it enough to know the officer who will sanction your loan, what you need is a good credit score. If you don’t have any credit history, you will find that banks are reluctant to give you a loan. Now you may criticise this rather warped system all you like, but this is what it is.

In any case, if you need a small size loan really quick, it’s always better to rely on the formal system than go to some corner money lender who will charge to a lot more.

Step 2- Do not borrow to fund your fun

The ads for instant loan apps are very tempting; talking about gifting something nice to your mother can definitely get you interested. Hopefully, you aren’t as gullible and know that your mother any time will be happier to simply spend time with you than get a gift bought with borrowed money.

An interest free EMI on your credit card or an interest free pay later scheme may seem harmless to you. However, its harmless only till the time you are able to repay on time and don’t pile on too many of those.

Taking on payment extensions and quick loans is less about math and more about your behaviour.

Yes, sure you can buy that laptop on an interest free EMI, but ask yourself why you are doing that. It makes sense, if you need it to complete your college assignments or perhaps its essential to the new job you picked up, hopefully it is not to feed your online shopping fetish. Oh wait! You can always use the phone you bought on EMI for this one.

But why do you need to buy that latest pair of shoes on EMI? You don’t need to have a new outfit each time you meet your friends for dinner. Expensive gifts for your colleague’s birthday won’t make you look cool either.

Travelling on a loan is a definite no! Why? Of all the easy spends these days, travelling can be the most addictive. Once you get addicted to travel, financing your next trip with a loan will not be difficult. What will create an issue is repaying all your travel debts when you spend most of your time on leave from work to enable your travel addiction.

It’s all about discipline

You may take a digital instant loan or an EMI or an extension to pay through LazyPay, whatever the platform – know that you are borrowing to simply spend. But being lazy about your finances is never a good idea. You have to discipline your spends if you are going to take a loan. Have fun with your hard-earned money and make sure you are not paying needless interest to someone just to have more clothes or fund those super expensive movie tickets.

It doesn’t take long for the EMIs to stack up and soon your monthly salary falls short. With Jet Airways running out of funds, we can all see that large companies too fall hard and the impact is on the salaried employee with all the outstanding EMIs. Don’t take your ability to repay for granted.

There is no magic trick, if you want to spend  – you must earn, save and invest.