What is the biggest red flag when it comes to the health of your personal finances? The answer is simple. Loans. Or rather, high interest loans.
Having a home loan or an education loan is ok. Having a car loan is ok too if you can pay the EMIs comfortably. However, having high interest debt, whether it is credit card, personal loans and so on can be detrimental to your finances.
According to BankBazaar’s Aspiration Index, a study of India’s aspirations through the lens of personal finance, the percentage of people without any open credit liability is down to 13.4 per cent from 2022’s 19 per cent. Overall, this is good news.
However, loans of up to Rs 25 lakh cumulatively form the bulk of the lending landscape. These have grown from 88 per cent of the debt burden in 2022 to 91.2 per cent in 2024. While this includes fresh and existing credit, it is evident that small ticket loans rule the roost.
Now, for some more scary data. Close to 40 per cent people depend on credit cards, short-term loans, buy now pay later (BNPL), and more to meet monthly expenses. This number is much higher in the non-metros (45 per cent) compared to metros (39 per cent). Only 25 per cent have either not had any such dependence or reduced their dependence on such products in the last one year, compared to 30 per cent in the metros.
“Consequently, the percentage of people finding it tougher to repay their loans is also higher in the non-metros (22 per cent) compared to the metros (18 per cent). Given this, and may be despite this, 44 per cent of people in metros and 36 per cent in non-metros aspire to be debt-free in the next year,” says Adhil Shetty,CEO, BankBazaar, a financial marketplace.
Borrow Responsibly
Being debt free can seem impossible for some but it is achievable. In case you are having to resort to loans to manage your monthly expenses, you need to take a very hard look at your expenses. One way is to increase your income, the other is to cut down drastically on your expenses. Depending on credit cards, short-term loans, BNPL for monthly expenses is a very bad idea.
The next thing one should do is to think twice before going for a small ticket loan.
The festive season often comes with numerous time-sensitive offers on small-ticket loans that makes them look attractive. But before opting for a small-ticket loan, borrowers should assess their financial situation to ensure that the loan is helping them manage expenses rather than adding to their financial strain.
“While these small loans can be especially helpful for people who need the instant funds for festive expenses. It's crucial to take a loan only when needed and not just to take advantage of an offer or go on a spending spree,” says Ameet Venkeshwar, CBO, LoanTap, a personal loan platform.
Most importantly, borrowers must evaluate the offers to avoid getting into any misleading or fake claims. “It is also crucial to ensure that the lender is RBI-registered to avoid falling prey to unethical lending practices,” says Venkeshwar.
Becoming debt-free involves managing finances strategically, focusing on reducing high-interest debt, and building better spending habits. Effective strategies include consolidating debt, creating a realistic repayment plan, and prioritizing financial goals. Staying disciplined with budgeting and spending can empower individuals to regain control of their finances and work toward lasting financial stability.
