Today, people are earning more. Salaries are higher than ever before. Standards of living have improved and trips abroad are common. You can fill your house with the latest gadgets and kitchen appliances. You can own the latest phone. This is all part of urban living. How do you deal with this increase in disposable income? Banks and non-banking financial companies (NBFCs) are giving various types of loans. They are also giving credit to finance the increased spending. So, today’s generation is always managing debts or trying to! They are balancing different types of loans. These include Home Loans and car loans. People also have to manage credit card payments at the same time.

What is the Problem?

Salaries have increased. Then why is urban India still struggling to manage expenses? Why has the ‘urban poor’ emerged? Double-income families are becoming common. Then why are most Indians finding it tough to manage debts? The problem is the attitude towards finances. There are often two extremes. For some people, managing their finances is all about saving. For others, the problem is only spending and not saving.

The solution is finding a balance. On the one hand, you need to save and invest for the future. On the other hand, you need to spend wisely in the present.

How Can You Manage Your Debt Burden?

Here are some tips to manage your debt burden:

  • Calculate Your Debt Burden: Note down all your debts. Also, note down your corresponding EMIs. What is the amount of all your EMI payments put together? It should not be more than 50% of your monthly salary. But suppose it is that much. You need to take out some time to speak to your bank or NBFC. Ask them to extend the loan tenure of your loan repayment. This will lower your monthly EMI. So, your monthly debt payment will be less.
  • Avoid Credit Card Debt and Personal Loans: Some people depend on credit cards and personal loans to finance lavish lifestyles. Sometimes, they use more than one credit card. But these credit options have some of the highest interest rates in the market. Also, suppose you miss a credit card payment. You will have to pay late fees and other charges. So avoid taking a personal loan and using credit cards unless there is an emergency.
  • Real Estate as an Investment: A house or land is an investment. You can take a housing loan to buy real estate. The loan also becomes a part of that investment. A housing loan lets you avail tax benefits. This way, you can save money.
  • Pay Off Your Biggest Debt: Make a list of all your loans and debts. Start with the most expensive and end with the least expensive. Choose your most expensive debt first. Pay as much as you can towards it. But also keep paying the least amount towards your other loans. Have you paid off your most expensive loan? Now move on to the second most expensive loan. You can follow this strategy until you clear all your debts.
  • Educate Yourself: Learn about where and how you can avail tax benefits. You could get tax breaks for taking care of old and sick parents to supporting school-going children. Knowing all your options for tax benefits can save you a lot of money.
  • Make a Budget and Stick to it: It is important to make a budget and stick to it. List your essential monthly expenses. Avoid too many unnecessary expenses like shopping and holidays. First, clear your debts. Then you can always go on fancy holidays and buy what you want. Pay off your monthly expenses first. Do you have any money left? Then keep it aside for clearing your loans.
  • Build a Corpus: You can reduce your loan tenure. Then you can avoid paying more money on the interest. For this, you need to build a corpus from your savings. You can then use this corpus to make a lump sum payment towards your loan repayment.

Keep Your Finances in Order

Follow the tips given above. Managing debts will no longer be impossible. Make a budget and stick to it. Make a list of loans and debts. Start by paying off the highest loan. Work on clearing your loans one at a time. Use loans to avail tax benefits. Be wise and patient. Soon your finances will be in order.

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