"It's not about how much money you make, it's about how much money you keep." - Rich Dad Poor Dad
Srinivas is a software engineer in with an annual income that many people would envy - a solid six-digit salary. He lived a lavish lifestyle, taking annual vacations, owning the latest electronic gadgets, and enjoying all the luxuries his income could afford. Despite his great salary and seemingly perfect life, Srinivas was constantly stressed. At the end of the month, he was left with almost nothing to save. His entire income was spent on paying off debt-his large house, his brand-new, shiny car, and the latest gadgets he bought or for his vacations. To pay off his existing debt, he took on even more loans, leading to additional EMIs. He had fallen into the classic debt trap-where increasing income only fueled increasing expenses, leaving him financially vulnerable.
Debt isn’t the villain here. Used wisely, it can bail you out in tough times, fund your dreams, and even boost your credit score. But let’s be real—when borrowing becomes your go-to for daily expenses, you’re not in control. The problem? It’s not just your bank account that suffers. A debt-heavy lifestyle means less saving, slower wealth-building, and no financial freedom.
With globalization and liberalization, consumerism has skyrocketed, and fintech in NBFCs has made borrowing easier than ever. Getting a loan is now just a few clicks away. Shopping websites and platforms like Amazon bombard you with BNPL or 'Buy Now, Pay Later' options, luring you into the trap of instant gratification. It feels great in the moment, but the hidden cost is your financial freedom. What seems like a small EMI today can snowball into a mountain of debt tomorrow. Debt management isn’t just about cutting expenses; it’s about resisting the urge to splurge on what you don’t need and making your money work for you instead. Therefore, track your finances and build better spending habits, plan your debt and create a financial roadmap.
The Rising Tide of Household Debt in India
Let’s talk numbers. As of March 2024, India's household debt stood at approximately ₹120 trillion, marking a significant increase from ₹77 trillion in June 2021. This surge has elevated household debt to 41% of the country's GDP, up by about 4.4 percentage points over the same period. By June 2024, this figure further climbed to 42.9% of GDP. This upward trend is primarily driven by a rise in the number of borrowers, with loans being utilized for consumption, asset creation, and productive activities. Notably, housing loans constitute about 30% of this debt, while non-housing debt has expanded significantly, reaching 32.3% of GDP by the second quarter of FY25.
The Reserve Bank of India (RBI) has expressed concerns over the growth of unsecured lending, particularly for consumption purposes, as household debt to GDP reached a record 40%. In response, the RBI has implemented stricter credit reporting rules, requiring credit bureaus to update borrowers' information bi-weekly. This measure aims to enhance lenders' ability to assess borrower leverage and prevent over-lending.
So, how do you flip the script? Here’s a game plan to keep debt in check and your finances thriving:
Step 1. Cut Down That Debt Like a Pro
Debt freedom starts with knowing where you stand. List out everything—credit cards, loans, EMIs—then rank them by interest rates. High-interest ones (hello, credit cards) need to go first.
Some smart moves to slash your debt:• Always pay more than the minimum due. Interest is sneaky; don’t let it pile up.
• Put new loans on pause unless they’re absolutely necessary.
• Negotiate with banks for better interest rates or consider consolidating debt.
Every rupee saved on interest is a rupee that works for you instead of against you. I am sure this is not the first time you have heard this, but the real secret lies in taking action-pay that debt.
Step 2. Make Your Budget Work for You
Budgeting isn’t about boring spreadsheets—it’s about financial freedom. If your spending is out of control, no salary increase will ever be enough.
Here’s how to get smart with your money:
• Use cash for daily expenses—makes spending feel real, unlike swiping a card.
• Watch out for lifestyle inflation. Just because you earn more doesn’t mean you have to spend more.
Think of budgeting as giving yourself a raise without actually needing one.
Step 3. Make More Money, But Make It Count
Earning more is great, but if you’re not smart with it, it won’t fix your money problems if you do not follow Step 1 & 2. More income should mean more financial security, not just more spending.
Here’s how to turn extra income into real wealth:
• Invest in skills that help you earn more. Online courses, certifications, or side hustles can pay off big.• Explore multiple income streams—freelancing, passive income, or investments.
• Put every extra rupee to work—pay off debt, save, or invest instead of splurging.
Why This Matters
Good debt management isn’t just about financial stability—it affects your future borrowing ability, credit score, and peace of mind. Life is unpredictable, and even if you build a solid savings pool, there may be times when you need a loan. A clean credit history, disciplined budgeting, and strong savings habits will ensure you’re always financially prepared.
At the end of the day, personal finance is exactly that—personal. The economy may fluctuate, policies may change, but how you handle your finances is in your hands. Take control, make smart choices, and build a secure future for yourself.
~ Anurag T, PennyCounts
