28 Nov 2022
We are in times when the usage of credit is in fashion. It is encouraged and extensively offered and sold by institutions. Gone are the days when availing a loan was a difficult task.
Traditionally, people opted for loans for big-ticket purchases or expenses such as a house, a vehicle, education or marriage.
But we now have the option to pay for everything - later. It could be footwear, clothes, electronic gadgets or even vacations.
As a result, some of us may have end up with many loans on hand. These could be a mix of long and short-term loans, but they have one thing in common – they are eating away a part of our income, especially due to interest costs.
Because of this, we often find ourselves in a situation where, within a few days of our monthly income coming in, we are left with only a small part of it – because the rest has gone into repaying loans in the form of monthly instalments or EMI.
How can you manage this better?
By trying to follow a simple guideline – your EMIs or monthly payments should not be more than 40% of your monthly net income.
This would include your home loan, education loan, loan for any vehicle, personal loans, any electronic item or gadget that you have taken on credit, and all other loans that you may have on hand, big and small.
Start by calculating all the loan payments you have each month, and compare the total of these loans to your monthly income. If the percentage is more than 40%, try to figure out which loans can be repaid first, so that this overall percentage can be bought down.
If you are significantly higher than the limit, try and rationalise whether you really need a loan when you are considering buying something else on credit.
And if you are below the 40% threshold, try and eliminate the high-interest debt on a priority basis.
We hope this article has been helpful for you!
This article is for information purposes only. The information provided herein is derived from public sources, believed to be from reliable sources. However, no representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. Kotak Mahindra Mutual Fund/ Kotak AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in future. Readers should seek professional advice before making any investment-related decisions and alone shall be responsible for any decision taken.