After the recession hit the globe in the early 2008, who knew that the after effects would be felt 3 years from now and still the uncertainty lurks in the air as to whether or not the financial positions of various continents, countries, companies etc. can bounce back to normalcy.
The finances of individuals too have been affected making them cautious spenders. In these kinds of situations you need to carefully evaluate your choices and carefully assess as to whether or not you require any kind of debt or not, since lack of prudent decision making can create a huge impact on your finances crippling you for a long time.
To provide you a clear picture it is best for you to stay away from high interest rate unsecured loans like credit card loans, and consider it to be the last option. However this does not mean that you have the liberty too freely move about signing up for secured loans like a home loan. The reason as to why it is important for you to keep yourself away from such debts is because, the interest rates have been fluctuating forever, and RBI too has announced that stability of the same cannot be guaranteed for a long period of time. So, in such uncertain scenario if you carelessly opt for the debt it will be difficult for you to recover with the rising inflation rates looming over the economy.
Here are a few things that you need to watch out for:
1. Do not borrow beyond your ability to pay:
Most borrowers commit a huge blunder when it comes to deciding the amount that they require a loan for. Due to greed or haste, they tend to borrow much more than what they can actually prepay. This rule is applicable for those people who require opting for a home loan or a credit card loan. Ensure that your loan amount does not exceed more than 40-50% of your take home salary. In doing so, you will be well within your repayment capacity.
2. Do not opt for top up loans:
Once you have taken a home loan and have successfully completed with its construction, you may require additional finances to get your house fully furnished. A top up loan is assumed to do the needful and you may successfully be able to avail it. But what you need to understand is that top up loans are treated like personal loans in more ways than one, due to their similarity in their structures and the interest rates that they carry. So make sure that you opt for them only when you are in dire need.
3. Do not factor in future profits or bonuses:
Another mistake what customers commit is that they factor in future salary hikes or bonuses in case of their salaried job and profits if in case they are entrepreneurs. This is very wrong since no one has seen the future, and is uncertain as to what happens tomorrow, it is important that you consider your earnings at present.
4. Repay your credit dues:
It is VERY important for you to repay your credit card dues and NOT carry forward it to the next month. Most bankers market their credit services wherein customers need to only pay a minimum amount. But when the outstanding amount is carried forward to the next month it is only treated as an overdue amount and you will be required to pay high interest rates and face penalty charges for the same.
5. Credit cards are not ATM cards:
Treat this plastic cash as the last spending tool and not as your only spending tool. The main reason is that your cash advance charges will be more than 4% per month. Summing it up the total interest that will be accumulated over a period of 1 year can go up to 49%. Also, the interest on your credit card is charged not from the credit period of 30-45 days but from the day when you use your credit card to withdraw cash which is also the same in case your card is swiped at POS terminals and merchant outlets.
6. Read through the terms and conditions:
It is highly important to read the terms and conditions of the credit card that you are opting for. The terms and conditions includes all the minute details and the charges that can be levied on your card which your bank otherwise may not mention. The overdrawing charges, the interest on your credit card the penalty charges are all mentioned in the T&C which is mandatory for you to read.