Once a TV anchor interviews 'Satan'-the devil. The anchor asks- "Whats the most horrible thing you've done?" The Satan replies-" Everything in that genre. Be it epidemics, poverty, illiteracy etc." The anchor asks again. "But there must be something you must be really proud of?" The Satan gives that wicked smile and answers- "Yes! CREDIT CARDS!"
So thats the horrible effects credit cards brings along with them, if you don't know how to have a control on your spending. so lets see 4 ways of controlling your debts.
1) LIMIT YOUR BORROWINGS: Always keep track of two things. Your income & expenses and assets and liabilities. Your EMIs should never be more than 40% of your take home pay, if you have a home loan to pay. If you don't have a home loan, your EMIs should never exceed 25%. Coming to assets and liabilities, your total liabilities should never be more than 50% of your total assets. By doing this we limit our debts.
2)DIFFERENTIATE BETWEEN CHEAP AND COSTLY LOANS: Home loans and come at an interest rate of 8 to 9% whereas credit card interests can go up to 32 to 46% annually. One should always keep these factors in mind and act and decide upon their spending accordingly.
3) SPEND WISELY: There are two types of spendings. One is spending on essentials like education, caring of the aged, family responsibilities etc. the other type of spending is spending on luxuries. If an aged family member is sick, one cant wait to accumulate funds. Taking credits in such instances is justified. But opting for credits to buy a branded product is not wise enough. We can always wait to gather funds to buy such products.
4) EMIs BETTER THAN RENT: Its always recommended by the financial experts to go for EMI payment for a house rather than staying in a rented house. This is because by paying EMIs you'll get rid of your loan faster. Rent would mean you carry the burden of loan as long as you stay in that house. Also, if possible, its better to pay of the EMIs even before time. Although this would attract a pre-payment penalty, Its quite low compared to the home loan interest rate. The penalty rate is just 2%. So its advisable to do away with the EMIs with the additional 2% rather than keep on paying the 8 to 9% interest for a longer time.
All these points if pondered upon is sure to keep a check on your debts. And trust me, once your debts are not overstretched and well under your control, you'll always have a very big reason to wear a smile.
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