Home / Money / Personal Finance /  How to manage your debt so it doesn’t become a burden

Most people avail their first loan between the age of 20 and 25 years and continue to borrow through their 30s as they set up home and start families, and retire debt through their 40s, according to InCred Finance, a Mumbai-based fintech firm.

Credit bureau data shows that about 60 million individuals have an unsecured credit instrument from the organized sector. These are credit cards, consumer durable loans, personal loans, or most typically some combination of these three.

InCred Finance added that about 20% of its consumer loans are to first-time customers, meaning a major chunk are repeat loan takers.

Experts say that it is important to manage loans and prevent yourself from falling into the debt trap. Here are some tips on how to manage your debt so it doesn’t become a big burden.

The first key step is to understand the factors one should keep in mind when taking a loan.

“First, an individual must ask, can I do without this loan? Some loans are needed for important time-sensitive expenses, while others may be avoided by deferring or reducing consumption. Second, how can I repay my debt? It is normal even for well-meaning, well-educated people to overestimate their future income. Last, am I considering my finances holistically, beyond this loan? People often forget that mortgages, credit card balances or new fashionable products like BNPL (buy-now-pay-later) are all basically loans," said Prithvi Chandrasekhar, Head- Risk and Analytics at InCred Finance.

The loan market has recovered strongly after the covid-19 lockdowns and is showing more than 100% year-on-year growth (on low base). According to InCred Finance, the market is expected to grow at 20% over the next three-five years, as consumer credit penetration in India catches up with comparable markets

Moreover, collections have also recovered since the covid-19 lockdowns ended.

After you have taken the loan, the next is to manage it so that it doesn’t become a big burden.

“Staying financially fit is like staying physically fit, it is all about doing the small but important things regularly," said Chandrasekhar.

The first step in managing loans is to be regular in both loan repayments (e.g. EMI payments) and in savings (e.g. SIPs in MFs). The second step should be to build in cushions or buffers in your finances for unexpected events or expenses, like an illness or a very attractive but short-term discount.

“Individuals must also monitor their bank statements and loan accounts for unexpected entries. Also, digitally file important documents such as KYC, employment proofs, income tax returns, etc," he added.

If you follow these simple rules, modern finance can make your life a lot more comfortable and fulfilling without ever becoming a burden.

Abhinav Kaul
Abhinav Kaul writes on cryptocurrencies and mutual funds at Mint. His previous stints include ETMarkets, Reuters Bangalore and Press Trust of India.
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