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Stop Borrowing Your Way Through

Monday, January 08, 2018
By Amar Pandit

Amar Pandit, Founder & Chief Happiness Officer, Happyness

In the current scenario, with increase in the standard of living and the rising costs of necessities, we have seen a surge in the number of middle class families that are borrowing money to meet their family’s needs.

Further, the younger generation has an excess cashflow in their initial years of working. Lack of responsibilities makes it easy for them to have more money than they need. Thus, these ‘extra bucks’ are spent to live a luxurious lifestyle that they desire. As they advance in their career, family responsibilities increase along with the salary and thus, they are in a troublesome situation of being entitled to a standard of living that they cannot afford. In such a situation, credit cards and cover loans are highly rated as saviours. Plus, they also offer you loyalty points for your next purchase. Cherry on a cake, isn’t it?

The dream of owning a home, having a fulfilling career, settling down, maintaining a life style, etc. all will lead to growing debt and you will be stuck in the vicious debt cycle before you even start to realise it.

But is this an ideal situation to be in? Definitely not. In the chase of always ‘wanting more’, people tend to miss out on the rate at which they’re piling up the debts. Any income can be spent but when contingencies arise, managing day-to-day expenses along with debt repayment becomes a huge issue.

Does this mean you shouldn’t borrow at all?
There are good arguments about debt and leveraging being beneficial, like a mortgage, since it’s a smart investment, considering the lower interest rates.

Debt, if used well, can create income-generating assets to boost your income and improve the productivity; otherwise it is wasted only on things that won’t really add value.  

One needs to understand that it takes years to get out of debt. Following are the key things to remember which will lead your way towards a debt free life…

1.    Understanding your debt: Understand your debt i.e. whether it is consumer debt (credit card bills, personal loans) or secured debt (car or home loans).

2.    Plan your finances: list down the mandatory expenses which occur to keep your routine going (Grocery, Electricity-Water-Telephone Bill, EMIs, etc.) and always ensure that you have enough cash in hand to pay for these.

3.    Set aside 3-4 months mandatory expenses. This would be beneficial in case of any emergencies and would help you to avoid adding debt.

4.    Set goals: Find the goals that inspire you and you’ll have no problem focusing on the same. After listing down your cash inflows and outflows, look out for the surplus balances that can be channelized towards these goals. Find out the investment avenues which would help to achieve these goals. This would indirectly stop impulsive purchases.

5.    Turn your junk into cash: We always tend to make impulse purchases only to realise later that it was unnecessary. Anything in your house which hasn’t been used for past 6-12 months, chances are slim that you’ll use it anytime in future. So, why not get a rid of it by selling it off and get yourself some extra bucks? Many websites today offer a platform wherein you can sell your used products at a reasonable price.

6.    Limit your overall debt payments to a maximum of around 35% of your gross income. The lower, the better.

When it comes to getting rid of debt, the most important thing is to get started. Assess your situation and consider the options that will work best for you. If you are struggling with debt, act quickly and seek help from a Financial Advisor.

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