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How to avoid too much debt in your 20s?

Here are just four things you need to keep in mind to ensure you don’t go overboard with your loans.

Do you receive a lot of calls and messages from banks offering credit cards or personal loans? All offering easy processing of loans, or credit card limits that are exciting. It’s never been this easy to get loans, provided you are salaried.

Since the last few years retail loans have been growing faster than the number of accounts. In other words, people are borrowing much more than before. With options ranging from travel experiences to retail experiences, it doesn’t take a genius to spend money. 

This, however, if taken to extremes makes it ridiculously easy to fall into debt traps. This is more so the case in your early years when your salary may not be that high, but desires are many. 

Sometimes going without debt may not be an option, for example in the case of education loans. However, taking on “optional” debt is a choice. Saying “We will see”, or more likely "Dekhi Jajegi", too many times can lead to more trouble than it is worth.

Here are just four things you need to keep in mind to ensure you don’t go overboard with your loans.

#1. Gain visibility

Trouble with too much debt starts when we spend without knowing how much we can safely afford. Take a good look at your bank and credit card statements. Are you running multiple EMIs on your credit card? Do you end up buying a pair of expensive headphones or shoes every month? Saving begins when one knows what are the optional things that most of their money is going towards. 

#2. Cater for savings first

Save first, spend later is not just pedantic advice people give to those younger than them. It makes a lot of sense too. Automating savings before you have a chance to spend makes it easier to get your spending under control and thus avoiding taking on more debt than is necessary. 

Figure out your necessary expenses like rent and power bills. Then, create an auto-debit into at least a Recurring Deposit. Even if the amount is low at least you are saving something. This, also, automatically puts a hard limit on the loans you can take. 

#3. Plan for big spends and limit the number of simultaneous EMIs

Temptation in the form of sweet deals, especially on gadgets, can be hard to resist. The default is to simply pay with your credit card and then put it on EMI. Considering that sales happen almost every two to three months, and unless you have great self-control, you are likely to end up with multiple EMIs and zero savings. 

If that sounds like a bad thing, then just plan a little. Create a shopping wish list of the things you really want. It could be a phone or a gaming console or anything. Now if it’s really important to you then you can save a bit for it, can’t you? 

At the very least, if you have to go the EMI route, plan so that you save something and don’t have more than a couple of EMIs running at the same time, especially if the total EMI amount is 20% or more of your take home income. Don’t go for a personal loan simply because the stuff you want to buy costs more than your credit card limit. That’s great for instant gratification but not so much for your financial well-being.

#4. Don’t fall for the minimum payment trap

Lastly, don’t just pay the minimum amount due on your credit cards. Pay the bills in full and on time. You don’t want to pay an interest amount that is greater than what the thing you bought costs. Most shopping sales involve some attractive deal on credit card EMIs, but it won't look all that attractive when the time comes to foot the bill. Trust me, literally been there, done that, and definitely don't want to repeat.

Debt can be useful if you are smart about it and can afford it based on your income and savings. The next time you scroll through your shopping app, pause for a bit and think, do you really need to borrow to buy?


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