Debt / Loan has become an unavoidable part of one’s lives nowadays, you are an alien if you don’t have any EMI. Its a new virus in town, and if you catch this virus in your mind your financial health will become dangerous. Getting loans have become very easy now a day, starting from Bank, to NBFCs, Gold Loans, Loans against Salary; Peer to Peer Lending the list is endless. Earlier people require loans to meet their personal needs including buying a car, house, for education, for marriage, for home appliances etc. But now Loans available even to buy our basic stuffs like clothes. EMIs are one of the most popular options offered by lenders to their borrowers by giving them an option to pay in small amounts, i.e instalments.
It is not bad to take a debt, as it helps afford the things one wants to buy by way of paying through instalments as they can’t pay the whole amount in one go. However an excessive use of debt in meeting your financial needs puts you into a debt trap and getting out of it becomes very difficult. Be wary if you have following symptoms.
- Borrowing for Monthly Regular Expenses:
You are deep in debt when you start relying on debt for meeting your regular expenses such as utility bills, school fees of children, groceries etc. It means you are not even able to meet your day to day expenses from your income. In order to correct this you need to plan your finances well. Always make a monthly budget, as this will help you to identify unnecessary expenses. There are lot of apps which will help you to organise your expenses.
- Not paying your Credit Card bills on time:
Not paying credit card bills on time comes or paying only the minimum amount. This practise will come with penalty interest rates of around 35-40% interest rate p.a.. When you miss out on paying your monthly dues, you are burdened with the high interest cost which hits your finances hard.
- Poor CIBIL score:
When banks start refusing to give you loans due to your poor credit score then, this is a clear sign that you are bad at paying them off. When you start defaulting on loans or delaying them ,your credit score starts getting lowered. So one should always pay attention to their ongoing loans & emi, keeping track on their due dates will help in paying them on time.
- EMIs Exceeding 50% of Income:
This is very dangerous for your financial health when your loans & emi payments consume more than half of your income.
Easy availability of EMIs even on small spends lures individuals to purchase unnecessary stuff and spend more, thereby these small EMIs add on to become big at the end.
Having a high portion of debt will leave you with very little to meet regular expenses and monthly savings.
- Loans to Repay Loans:
Lot of people do this, they rotate credit card payment, and this is not a good sign. And if you start taking loans to pay off your other loans/EMIs, nothing can save you from financial disaster.
This makes you end up paying even more in interest payments. So it is important to plan your finances well, you should resort to loans only when you are sure you will be able to pay it off on time.
- Credit card Cash withdrawals:
Cash withdrawals from credit cards can make you fall in a debt trap by way of the high cash advance fees they charge, around 3% of amount withdrawn per month which is almost 35-40%(varies across banks). So, avoid this at any cost.
- Not having an Emergency fund:
If you do not have an emergency fund, then you might be falling into financial trouble. In times of uncertainties such as job loss, salary delays, medical emergencies you may have to borrow to pay for your bills in the absence of an emergency fund. Getting into debt can be avoided with the help of reserved funds made for uncertainties and can protect you from the high interest’s burden they carry.
Lot of NBFCs will lure with lot of attractive offers, the offer is not attractive to you but for them. They will pamper you with top up loan, overdraft card etc, you might not really need it but they will tempt you in such a way you will fall prey.
Once you have this facility, our mind will automatically look for ways to spend that money.
If you see yourself making these mistakes, you really need to plan your finances well.
Regards
RaVi
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