It is standard financial advice to avoid being heavily in debt. But also in order to achieve long-term goals of improving your education and skills, owning a home and paying for your children’s education, you have to make smart use of credit.

Saving is essential, but saving a fraction of a small income will make long-term goals more difficult. Having access to credit to improve your skills and raise your future earning capacity is more important. If you really want to aim for the big leagues, then taking credit to start a business is the way to go.

But then this financial advice usually relies on the assumption that the prospective returns on the investment made with credit will account for the cost of the credit. But that is difficult in a high interest rate environment like Ghana.

The average lending rate from the latest BoG figures was 32.7%. This means that whatever you plan to use credit for, it must return at least that amount for you to break even. But even this rate is generous. I know people who are creditworthy who have had to take out loans at 48% from microfinance companies because banks (who have 19.3% of their outstanding loans as non-performing) refuse to give it to them.

I’m not making the case that one should not access credit at all. No. I’m only trying to point out the importance of context in using financial advice. In an environment with reasonable borrowing costs the prospects of credit look much better. But it will require a really great business opportunity to be able to generate enough revenue to meet all operational expenses, pay off finance costs of 48% and still have enough after to make it worthwhile.

There is a danger that what would have otherwise counted for smart use of credit could leave one heavily indebted. It is more important therefore, in a place like Ghana, to research and plan before you take the step of seeking credit.