Last week I was travelling and therefore watched Television – and it was Utvi Bloomberg that I watched. Here the very sensible (and not so shrill) Surabhi Upadhyay was doing a program on debt reduction / consolidation. Funnily it is perhaps the only program on the borrowing side. Most other channels and ‘personal finance’ experts concentrate on start early, do compounding, do an SIP kind of spiel. Nothing wrong, except that it is terribly over done.
Good job, Surabhi..but I got only the last part of the program…and so will not comment anything about the program content!
However, here are some of my thoughts on debt…
Today it is very easy to live beyond ones’ means. If you take any magazine you will find about 15 advertisements – of this about 14 will extol you to live beyond your means. If you can afford a Ford Ikon, they will urge you to buy a Honda City. If you can buy a Honda City, they will push you to an Octavia.
If you tell a real estate broker you are looking for a house for 6 million, be prepared to shell out 9 million!
All of this is easy – because there is a huge push to make you think in EMI language – not full price language! Sir a Merc is available for “only” Rs. 54,000 p.m. as EMI!
What are the indicators that you are living a little beyond your means? They are as follows:
a. Your cheques are bouncing! This is perhaps the worst indicator that you are issuing “rubber” cheques…so this is not a good idea.
b. Your credit score (currently in India you do not have a copy of this) is falling and the people who have lent or wanting to lend to you are hesitant about default and are increasing the interest rate. Speaking of credit scores CIBIL is the place everybody likes to go to…but there are others and they are FREE. At Cibil you pay some charges.
c. You are saving less than 15% of your salary! This is SCARY, very scary there is little elbow room, beware!
d. You are charging everything to your credit card and are paying only a part of the amount! I hope you noticed Hdfc bank has raised the interest charges to 3.25% p.m. Translate it to a per annum basis and you will not be far away from a number which is half a century!!
e. You have 4 credit cards and you are borrowing from one card to pay the other 3!
f. More than 30% of your earnings are going towards EMI payments – and these are all long term commitments
g. You have no emergency fund, losing your job is one of the nightmares you go through regularly, one small repair like having to replace your car tyres can create hell for you!
h. you are happy visiting your parents for 10 day vacations because you can save some living expenses
i. if you will touch your parents’ kitty for your purchase of car, bike or your marriage expenses
if you have any of the above mentioned problems, you need to set your financial house in order. TODAY.
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