Hyderabad: Our expenses are on the constant rise along with our incomes in today's consumer driven world. It has become new normal to take loans to buy a home, a car and even mobile phones. For this, people are not hesitating to make excessive use of personal loans and credit cards. Eventually, many are unwittingly landing in a silent debt trap.
These days, many firms are coming forth to give huge amounts of loans regardless of whether we need them or not. The same loans are becoming a noose round our necks. Utmost caution is needed from taking a loan to paying the last EMI (equated monthly installment). Now, home loan interest is 8.40 to 8.65 percent. It was below 7 percent when Repo rate was just 4 percent. Many people took higher loan amounts in excess of their need. As interest rate went up now, the EMI burden increased. So, we must consider future interest burden before taking any loan.
A sound plan is needed to manage loans and debts efficiently. It is always better to take only the minimum required amount though we are eligible for a far higher loan. As per financial principles, a person should not have loan repayments above 40 to 50 percent of their income. If it is below 40 percent, it would be even better. It would be difficult to pay installments in case of excessive loan burden. We have to compromise on other expenses if pending EMIs increased. Think for how much amount you can afford take a loan within the 40 percent cap on your income.
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High interest personal loans and credit card borrowings are easy to get. No doubt, they meet our immediate needs. But it is not good to continue such loans for a long duration. If the credit card bill payments are mounting, one should control expenses. To get out of this, a strict financial discipline has to be followed in this respect. Only those credit cards with lower limit should be used.
Close attention should be paid to paying off bigger loans as early as possible. For loans to be closed earlier than their terms, higher EMI amounts have to be paid. We have to make the right choice in this respect in order to get freedom from debts. The best option is to pay at least four additional EMIs on long term home loans every year.
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EMIs should never be delayed since the firms will collect huge penalties for any default in repayments. If this is repeated several times, our CIBIL (Credit Information Bureau India Ltd) score will also be affected. Not just EMIs, everybody should cultivate a habit to pay current, phone and other bills before the last day. If neglected as they are small amounts, heavy penalties will drain our money.
A planned financial status can be achieved only when we control ourselves and our needless extravagant expenses. The whole family together should chart out a sound financial plan. Ways should be explored to get out of debts. If loans are disposed of quickly, one can have greater freedom to spend their incomes on daily needs. It is always better to pay off loans early and use the resultant surplus for everyday expenses, instead of bearing higher interest burdens for longer durations.
