Debt, when managed wisely, can be a useful financial tool. However, poor handling of loans and credit can lead to a debt trap, where repayment becomes unmanageable, impacting your financial stability.
Start by borrowing only what you can afford to repay comfortably. Ensure that your monthly EMIs do not exceed 30%-40% of your monthly income. For example, if your income is ₹50,000, aim to keep your loan obligations within ₹15,000-20,000.
Pay off high-interest debt, such as credit card dues, first. Credit cards often carry annual interest rates of 30%-40%, making them one of the costliest forms of borrowing. If you’re struggling with multiple debts, consider consolidating them into a single loan with a lower interest rate.
Avoid taking on new loans to repay existing ones, as this can spiral into a larger debt problem. Instead, create a repayment schedule and stick to it. Setting aside a portion of your income each month specifically for loan repayment can help you stay on track.
Budgeting is critical. Cut back on unnecessary expenses and use the savings to clear your debt faster. For instance, avoid impulse purchases or subscriptions you no longer use.
Lastly, maintain a financial buffer for emergencies. An emergency fund can prevent you from relying on credit cards or loans during unforeseen expenses. Proper debt management not only ensures financial stability but also improves your creditworthiness for future borrowing needs.
