The story behind credit card debts and personal loans

Any one with even an iota of interest in personal finance & its workings would probably know that credit card debts and personal loans are usually the worst kinds of debt traps that you can fall into. Yet many people fall into that trap again and again. Many of them do come out of it eventually but some don’t & this becomes a part of their “lifestyle”.

That you are eventually paying much more than you need to, if you default on credit card payments intentionally or unintentionally (probably @ 36 % per annum or something similar) or take a personal loan (say, @ 12% per annum or so) is not hard to fathom.

Credit card debt and personal loan interest

However behind these numbers, there may be even a deeper story – that usually that of not having control over expenses or not having created a buffer amount. While there may be some pressing need like unplanned or recurring medical expenses which fuels sudden demand of money or an unexpected job loss, in many other cases this need may be fueled by lack of planing and indiscriminate spending, which may have depleted the non-existent much-needed financial buffer.

Few examples of some fault lines one needs to be beware of –

  • Buying an expensive latest iPhone model, which creates a hole in your pocket.
  • The extra Rs. 10K you spent on partying through the weekend. And that alcohol overdose which made you fall sick for next 2 working days.
  • That luxurious European vacation you took which stretched your financial limits.
  • That ongoing home loan for your “investment” in home which takes a good chunk of your take home salary.
  • You bought a swanky new SUV and now your EMI burden is pinching you.
  • Buying the in-fashion watch because it is cool and there was a sale. And topping that with 3 jeans because there was sale.
  • Blew up some money in casino when I went to Goa with friends.
  • Loaned money to a friend who is yet to return it despite following up since a year.
  • Investing in stock markets because it gives “assured” 15%+ returns, as your friend told.

There are many possible reasons, and most follow a similar script

So, when you consider defaulting on your credit card bill because of cash flow issues or take a personal loan for whatsoever reason, do think why you need to take that loan in first place!


Originally published here


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