The lifestyle disaster recipe

Take a loan if you want to invest. Otherwise don't. This is the one advice Ajit Karnik would give to anyone about to take a loan.

A professor of economics at the University of Wollongong in Dubai, he warns residents against the lure of a lifestyle beyond one's monthly paycheck.

"Loans that are used for consumption purposes, only to support an extravagant lifestyle, are a recipe for disaster," he said.

His top advice to residents is to ensure that if they take a loan, then use it wisely.

"I do not necessarily recommend a debt-free life," he said.

"If one never borrowed, one would never acquire assets. People have to take loans in circumstances and there is nothing wrong with that. The crucial part is to take loans that one can re-pay over a period of time from one's future income streams."

So, to make sure you don't fall into the debt-trap, Karnik's advice is to stay away from needless interest-traps, including your credit card.

"Charges on credit cards should be paid back as soon as possible. Paying only the minimum amount required constantly increases the balance on the credit card," he said.

A better option for those who fail to clear credit card dues is a debit card.

"If you are facing problems with credit cards, switch to a debit card which does not result in a debt creation," he said.

The secret to steer clear of debt traps, according to Karnik, is a disciplined approach towards your monthly earnings and expenses.