Kolkata: Loans are becoming increasingly accessible these days. With the adoption of AI, lending institutions are targeting potential borrowers more and more accurately. With the advertisement brigade unleashing more and more sleek campaigns to sell everything from consumer electronics to a vacation abroad, there is both pull and push on the consumer to apply for a loan. But once the loan is disbursed, the onus of paying EMI inevitably begins and there are millions of consumers in the country who feel the burden of servicing EMI every month. The point is, how to how to regain control over one’s finances and improve long-term financial health.
“Rising EMIs can strain household cash flows if not managed proactively. Consumers should reassess discretionary spending, prioritise high-interest debt and build a contingency buffer. Structuring repayments in line with income cycles and avoiding over-leveraging are critical,” Rohit Patwardhan, chief credit officer at HDB Financial Services, was quoted in the media as saying.
Points to keep in mind
The strategy to mark safe one from EMIs, in act, begins before filing an application form for a loan. But once you have taken a loan — it may or may not be an act of indiscretion — there is escape from the EMIs. Here are a tips if you find it stressful to manage your finances. The priority should be to cut down on all non-essential expenditure and channelise savings towards debt repayment.
If you have more than one debt that you are currently servicing, make a note as to which loan comes with a higher rate of interest. Usually the rate of interest on credit cards is the highest, followed by personal loans. Secured loans such as home loans and loans against property carry lower rates. If you have a choice, try to pay off the most costly loans ie, the loans with the higher rates of interest. This will help ease your financial burden.
Tips to follow
- Always audit monthly expenditure, hunt for expenditure on wants and cut them down. These can be anything like eating out to buying shoes and clothes or going to movies, which can be easily avoided with no material impact on your well-being. If necessary, even cut down on wastful expenditure such as running up unnecessary huge electricity bills. If you feel stressful. also avoid socialising for some time as it can entail significant expenditure.
- First pay off high-interest loans to reduce spending on interest payment.
- Focus on building an emergency fund. This should be adequate to cover about six months of normal household expenditure.
- Don’t go for any new debt, no matter how intense the temptation.
- Try not to take more than one loan concurrently.
- Get rid of credit cards if you have more than one. In conclusion, unmanageable personal loans, credit card bills, home loan EMIs, or any other form of debt can quickly spiral out of control due to high interest rates, late payment fees, or revolving charges on credit cards.
“If you are too much into debt and have a few of them, the prudent way is to consult a personal finance advisor. For playing with debt is like playing with fire. It can ruin your credit score which can ruin any chances of getting debt even at an emergency,” said Nilanjan De, director, Wishlist Capital and a financial strategist for a quarter of a century.