<div><em>Building up a decent credit history helps. Nowadays, for any kind of loan, credit history is essential to get loans from banks, says <strong>Sunil Dhawan</strong></em><br><br>Getting loans from banks or other financial institutions have not only become easy but even quicker. HDFC had recently come out with a 10-second loan disbursement offer. With loans being offered literally on a plate, we are lapping it up it seems.</div><div> </div><div> Recent Reserve Bank of India data shows personal loans increased 16.6 per cent in May 2015 as against 14.8 per cent in the same period a year ago. Even credit card outstanding grew to 23 per cent in May this year against 14.2 per cent in the corresponding period a year ago.</div><div> </div><div>The credit card spends and personal loans are unsecured loans and carry a high interest rate. They are primarily taken for purchase of consumer goods or on lifestyle expenses. This makes them qualify as ‘destructive loans’ unlike home loans that helps in creation of an asset. Over-dependence on debt for upgrading your lifestyle by acquiring consumer goods leads to a debt trap, which, if mismanaged, becomes irreversible. </div><div> </div><div><strong>Stick to thumb-rule</strong>: Keep your EMI’s around 40 per cent of your take-home pay. This includes all loans such as car loan, personal loans and even home loans. Over leveraging could land one in a soup. </div><div> </div><div><strong>Tips for credit card</strong>: On the due date, it is mandatory to pay up 5 per cent of the outstanding and the balance can be rolled over to next month. The amount rolled over is charged an interest rate to the tune of 36-42 pe rcent per annum. Never revolve credit on your credit card. Whatever is the outstanding at the end of the free-credit period, one should pay the entire amount on the due date.</div><div> </div><div> There is another disadvantage of rolling over. The fresh purchases made in the next month (if there is an outstanding on your card) do not get free-period. There is a 45-51 days free credit period on cards before the due date arrives. </div><div> </div><div>Avoid impulsive buying at all cost and avoid the temptation to stretch your purchases. Give standing instructions to your banker and keep paying entire balance on due date electronically. If there is a big purchase done on the card and you are unable to pay-off entire amount in 2-3 months, go for EMI option and ask your credit card issuer to convert the amount into EMI’s. At least you will cut on interest cost by half. </div><div> </div><div>If you have already piled up huge outstanding on credit card, make it your first priority to clear it off. Stop any further purchases on card. Create a plan to pay off the dues as quickly as possible. This may take few months but getting the loan off your back will help.</div><div> </div><div><strong>End note:</strong> Building up a decent credit history helps. Nowadays, for any kind of loan, credit history is essential to get loans from banks. If you are living on debt, there is a bigger damage to your investment portfolio. The returns on your investment portfolio would get set-off by the interest burden that you would carry. Lead a debt-free life and create your net worth.</div><div> </div>
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