Smart Moves to Make When You’re in Debt

In the past, people were not in favour of approaching banks for loans. They preferred to save money to buy what they required as taking debt was not the norm. To be fair, banks were also not very aggressive with their financing.

The last decade of the 20^th century changed the way banks did business. Banks started approaching people with various retail loan products like Home Loans, car loans, Personal Loans, and so forth.

Mind-sets have slowly changed and ‘debt’ is now an integral part of life. People have begun to accept the fact that taking loans like student loans, car loans, Home Loans, and Business Loans is not an evil and in fact can help achieve goals that were otherwise unattainable.

Debt is Not ‘Evil’

Most people today have exposure to some loan or the other. Some Students begin their career with debts. Today, a lot of the young people graduating out of college already have a credit record as they avail student loans.

‘Debt’ is an excellent friend. It helps you in an emergency. Today, no one can imagine saving lakhs of rupees to purchase a house with cash. With a little planning, opting for Home Loans has become the norm.

You need money to start a business. You have your capital, but that is not enough. Banks come forward to help you with Business Loans for purchasing machinery and so on. The trick therefore lies in managing your debt efficiently.

How to Manage Your Debt?

Applying for a loan for the first time is a chicken and the egg situation. Banks insist on a good credit score for approving any loan. However, How do you get a credit score without a repayment record? You need to avail a loan to build up a good repayment record.

Fortunately, the youth today has the opportunity to build their credit score. Therefore, building up your credit score is the first step towards managing debt smartly. There are ways by which you can build your credit score without running into too much of debt. They are as follows:

• 0% Annual Percentage Rate (APR) Credit Card– This concept is quite prevalent in the USA. Such cards are also available in India. Some banks issue 0% APR cards that help you to build up a decent credit score. Similarly, you have the 0% interest EMIs (Equated Monthly Instalments) on consumer durables. Small loans like these help you attain a good credit score. It enables banks to evaluate Your Home Loan eligibility when you decide to take a Home Loan.
• Invest in Real Estate–Financial experts refer to Home Loans as good What distinguishes a good debt from a bad one? A Good debt is one which grows in value. It generates long-term income for you. Taking a Home Loan is a good investment. The property appreciates over a period. The appreciation in the value in a waycancels out the interest that you pay on the Home Loan. The Home Loan instalments are small thereby allowing you to use the surplus cash for meeting emergency requirements. The rate of interest on Home Loans is also low. Hence, it has all the qualities of good debt.
• Take an Education Loan– Education loans in India are expensive when you compare them with Home Loans. However, education loans allow you to build a career. You will be able to acquire the qualifications necessary to land high-paying jobs. It is good debt because it helps you develop a productive asset.
• How About a Business Loan to Grow Your Business? – A Business Loan is a smart debt, but a risky one. A lot of business magnates who have become millionaires today have started out with Business Loans.

In this age of intense competition, it is normal for people to incur debts. Repaying your debts on time improves your credit score. It makes you eligible to get more loans. Thus, you can build up more assets. Therefore, if you manage your debt properly, it can be a great crutch for you to realise your dreams.