With debt comes default!

When you are burdened with too much debt, the natural tendency of anybody would be to skip a few of those installments. However, is that a permanent solution to your money issues? How long do you think you can continue without paying your dues? Till the time you get the label of a “defaulter” apparently.

Did you know? Bad or unpaid loans form almost 10% of the total outstanding loans across our country? Which is why, the rbi has issued strict mandates to all the banks to try and reduce the number of unpaid loans. As a direct consequence of this, even famous personalities who owe money and haven’t repaid it within the stipulated period have been publicly defamed as “wilful defaulters” for failure of repaying their loans.

The same situation may arise, even to us as individuals when we fail to repay what we have borrowed. Because, the moment you default on one of your payments, there is a good chance you might default on a string of your other payments as well. Well, the one way out would be to find the answer to the question: How to avoid being a defaulter?

Here are some tips to help prevent the whole issue:

- Never borrow more than what you can manage. Ideally your monthly dues should not exceed more than 50% of your monthly income.

- Although banks ensure you don’t exceed your debt to income ratio, when we are in desperate need of money, we seek avenues other than banks, and that is usually when debt trouble starts.

As much as possible try to seek help from friend’s relatives, family and so on, rather than depending on these external sources where personal loan interest rates are quite high.

- Learn to curtail unnecessary ( & avoidable) desires, and use credit as well your cash wisely.

- Always have a contingency fund stacked away for emergency purposes.

- Remember, banks go by the norm “once a defaulter, always a defaulter”, once you default it will be a permanent record in your credit report and there is a good chance that you will never be granted a loan till the point you pay back your loans!

The better you are at managing your personal finances, and the earlier you start doing that, the better you will be at being debt-free.

About Priya Rai

Priya Rai is a loan consultant.