91-9711165183
February 12, 2025
Credit has become the rule of the day, and it is readily available in the form of unsecured lending such as Credit Cards and Personal Loans or mortgages, Home Loans, auto loans, and Loans Against Property. Unsecured lending helps fuel spending, which may be beyond one’s budget. If spending is not accounted for, it will likely become an uncomfortable debt, so check for these early warning signs.
A Credit Card is a handy product for lifestyle and emergency expenses. Lifestyle aspirations make it easy to get lured into excess spending with Credit Card usage, which allows you to repay after a 30-day credit-free period. Keeping Credit Card usage in check is essential as the interest levied on the unpaid dues is exorbitant. To be noted are the following Signs that you could be heading towards overdue payments on Credit Card.
Expenses on your Credit card: A Credit Card is used for lifestyle expenses or emergencies. If you use your Credit Card to pay for essentials such as groceries and children’s school fees, you are tight on funds and appear to be taking the easy way out, specifically if the payments are not cleared on time.
Your Credit Card Limit is getting exhausted the ideal usage should be up to 60% of the assigned limit. If you use two or more Credit Cards and have used them extensively, you must consider how to repay the dues on the designated date. Revolving credit by using cards alternately can lead to debt.
Delayed Payment of Your Credit Cards: Lenders usually allow a grace period of 10 to 15 days for payment after your monthly statement is generated. If you cannot pay the total amount, it is mandatory to pay the minimum due, which is 5%. The balance is carried forward to the next month with an interest of 36% to 42% per annum. Further, if the minimum due is not paid by the due date, additional charges, such as late payment charges and over-limit fees, are levied. It is advisable not to ignore the implications of postponing your Credit Card Dues. A delay of one to two cycles is understandable, but further delays can lead to the multiplication of the due amount as a high interest rate is levied on the balance carried forward.
The ideal debt-to-income ratio, as per industry experts, is that an individual can pay a maximum of 25% of the monthly income towards debt such as Credit Card Bills or monthly instalments for a Personal Loan, mortgage or loan against commodities. Banks consider allotting 40% to 60% of the income towards the payment of an EMI of a Personal Loan, taking into account the net salary of the customer and the Company Category as per the Approved Company Category List of the Bank. If the ratio exceeds the benchmark, in the situation that an individual has other unexpected expenses or takes additional credit, there is a possibility of defaults with the following indications:
Delayed Payment of EMI: The EMI for your Personal Loan or mortgage is presented to your bank account on the designated date. If there is an insufficient balance in the account, it will return unpaid and be reflected as a bounce. An EMI accidentally missed is overlooked, but a continuous string of delays is to be taken seriously.
Low Bank Balance: Most bank accounts require a minimum Balance to be maintained, even if they are salary accounts with a Nil balance. The account holder must have enough to meet mandatory obligations and clear EMIs. An account that does not meet the average Bank balance requirement will not be issued further credit when required, and a cheque bounce prohibits the issuance of additional credit for three months.
Indiscriminate Borrowing: When stressed about paying bills, you may take credit from lenders charging a higher interest rate, such as App Loans or Early salary loans. This may give a sense of relief but lead to a further escalation of debt. Borrowing to repay debt is a warning that you are not managing your finances.
Maintaining a healthy CIBIL Score is essential, as it signifies an applicant’s ability to manage credit. The following are the CIBIL notifications that your credit ratings are going down.
Lowered CIBIL Score: To avail of credit, you must have a CIBIL Score of 750 points or above. Checking your CIBIL Score regularly is essential to ensure it is above the required benchmark take remedial steps if your score is dipping.
The Number of Inquiries in CIBIL is Increasing: Each time an individual applies for Credit, the lender sends an enquiry to check the customer’s credit history; too many enquiries indicate financial stress and will downgrade the CIBIL Score.
Increased Risk Ratio: The Credit Bureau of India Ltd (CIBIL) allots a risk ratio from 1 to 5, based on individual credit history, with 1 showing the highest risk and 5 the minimal for issuance of further credit. An increase in the risk score is a telltale sign of financial stress.
In Conclusion, having enough funds to cover monthly expenses and save for emergencies is essential. Shortfalls can affect one’s well-being, leading to loss of sleep, health issues, and stress. If covering your expenses is giving you anxiety, take heed of the signs.
Adopt the following strategies to help you avoid further debt and revive your finances.
Debt Consolidation agencies that offer instant solutions are not the answer. Remember that taking small, consistent steps can help avoid a sticky situation. Making informed decisions when acquiring credit and noting the early signs can help prevent a debt crisis.
