In today’s uncertain job market, Millennials are vulnerable to debt traps at each turn. Gen X enjoyed job security, a simple life style and with joint families, there was always help. Current times are difficult. The job market is poor with no job security. Joint families are being replaced with Nuclear families. Everyone wants to enjoy a high standard of living.
There’s nothing wrong in wanting to have a good time. You earn money and spend that hard earned money in acquiring assets like home, car, consumer goods and so on. You like to take exotic tours and vacations. Let’s face it. You might not be able to do all this with your own money. Therefore, availing loans is inevitable. Whether it is a short-term loan or a long-term loan, home loan or just a credit card, debt is debt.
So, are millennials popularly called the Gen Y, landing in a loan trap? Want to know more on financial planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.
Education loan is a good loan. It gives you access to quality higher education which means you enjoy a great career. But, if you don’t take studies seriously, the good loan might just turn bad. Education loans don’t need to be repaid in the moratorium period. Moratorium period is a waiting period before you start repaying the education loan. Generally, it is one year after the course ends or six months after getting a job, whichever is earlier.
See Also: Taxation of Debt Funds
If you fail in a semester or two, you take longer to graduate. You land up paying more interest on the education loan. Also, availing an education loan of an amount more than you might require, could land you in a debt trap. Say, you need Rs 6 Lakhs for education but you avail Rs 7 Lakhs because you want to buy an expensive laptop. You could struggle with repayments as you bear this additional burden.
Credit cards can help you save a lot of money if used and managed wisely. When you start swiping a credit card for just about anything, you lose control on spending. You fall behind in repayments. You’ll have to bear high interest of 2-3% a month on outstanding dues and if you cannot repay, there are penalties. Your CIBIL score will go down and you will not be able to avail important loans like a home loan.
Repay credit card dues on time. Then, request your bank to convert outstanding amounts to EMIs. Lastly, don’t just pay the minimum balance as you will soon land in a debt trap.
Ideally, one should save 30% of their monthly income. Practically, this is difficult. Most adults under the age of 35 have negative savings. This is because they are heavy spenders or repaying loans. Money has time value. So, however small your savings, investment planning ensures that your money reaps good rewards.
Yes, medical inflation is rising at 20% a year. With IRDAI minimizing health insurance exclusions and insurers offering more than just the basic coverage, grounds of claiming insurance are evolving. Look at day care which wasn’t covered but now, most insurers offer daycare cover in the basic plan. What if you fall sick? With heavy loans and credit card dues, where will you arrange the money? Your budget will be disturbed. You’ll have to spend out of pocket. Other obligations will be compromised.
We always emphasize the need of Term Insurance for millennials. If you have dependents, you must avail term life insurance. You may be earning well and providing for family. But, what if something happens to you? Can your family afford to maintain current living standards? Given that you have availed loans like home loan, car loan or personal loans to lead a comfortable life, how do you think your family will repay all these loans? What if you are the sole breadwinner?
Therefore, it is wise to avail a term life insurance to adequately cover all loans and protect your family.
It is easy to avail a personal loan. Banks don’t ask you for the reasons of availing personal loans. This doesn’t mean you avail loans for just about anything. Yes, you get personal loans for vacations, festivals, and so on. Yes, vacations are rejuvenating and festivals are refreshing. Does this mean you just avail personal loans without actually planning for EMI repayments?
Personal loans charge high-interest rates, around 15-20% a year. Ask yourself this question: Are you in a good position to repay your loans? Defaulting will cost you dearly. Your CIBIL score will be impacted and you might not get any loans in the future, when you actually need them for an emergency.
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