Availing too many loans and credit cards leads to the debt trap. Many young people in India are struggling with debt. People cannot repay loans with high interest rates. Increasing debt leads to stress and unhappiness. Managing debt is crucial to avoid falling into the debt trap.
What is debt? Another word for debt is borrowing. You borrow from banks and financial institutions and have to make principal and interest repayments in time. Default on debt leads to a bad credit score. Learn how to manage debt to avoid falling into the debt trap.
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IndianMoney reviews say debt management is important to avoid debt trap.
Pull out and study credit card and loan statements to see how much you owe creditors. IndianMoney reviews advice paying off expensive loans first. Check free credit score to understand debt position. If you have repaid loans but not closed loan account, do so immediately to improve credit score.
Personal loans and credit cards are unsecured loans with high interest. Credit cards charge 24-36% interest a year. An IndianMoney review says pay off expensive loans first for efficient debt management.
Never overburden yourself with debt. Choose and clear debts which can be repaid quickly. Keep long-term loans like home loans and education loans aside, unless you get a sufficient large sum (windfall like bonus or inheritance) to make a pre-payment. Understand tax benefits vs pre-payment in home loans and education loans. You get a tax deduction of Rs 1.5 Lakhs a year under Section 80C on home loan principal repayments.
There’s Rs 2 Lakh a year tax deduction on home loan interest repayments. First-time home buyers get an additional Rs 50,000 a year on home loan interest repayments, subject to certain conditions. You get tax deduction under Section 80E on education loan interest repayments.
Make sure there are no loans, close to retirement. Availing more loans shows credit hungry behavior affecting credit score. Convert all emergency purchases to EMIs to make easy repayments. If you need money urgently, liquidate fixed deposits or other investments. Most FDs give around 6-7% interest rate, but loans and credit cards charge much higher rates. Liquidate investments to repay loans.
SEE ALSO: NPS Contribution
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