As investors and savers, we are likely to take on some kind of debt in our lifetimes. For some, it may be the only option to tide over a cash crunch, for others, a convenient way to leverage future cash flow or build an asset like a house. Here’s what you should keep in mind while handling the following types of debts.
• Your first credit card
This will probably be your first experience in handling debt. It’s also the most expensive, so you’ll need to be careful about paying the bills regularly, and on time. It’s best to opt for a card with a low credit limit in the beginning since your bill payment record will be the foundation for your credit score.
Tips: Set a limit for the sum you can afford to pay in a month and stick to it. If you are unable to pay the credit card bill for two months, stop using the card immediately.
• Education loan
The high fees of most professional courses from renowned institutes, specifically for MBA, are tough to pay for young students. Fortunately, education loans can come to the rescue. However, before taking one, evaluate whether your future salary will be able to compensate for the big loan.
Tips: Public-sector banks offer the cheapest interest rates, but private sector banks give the fattest loans. Try to service at least the interest component of the loan during the grace period.
Read also: Asking for salary raise…prepare for additional task
• The next credit card
You’ve probably started earning a better salary now and have built a good credit history. It’s time to go for a second credit card or hike the limit on the first one. If you are a smart user, a credit card can actually be a source of free money in the form of reward points and cash-back schemes.
Tips: Choose a card depending on your spending pattern. So, frequent fliers may find co-branded cards by airlines useful. But don’t go beyond your means just to grab rewards.
• Personal loan
As an established professional, you now want to let your dreams soar, but you may require a little funding to boost them. The personal loan category, which includes travel loans and consumer durable loans can help you fulfill many dreams.
Tips: Such loans cater to your temptations, not needs, so don’t opt for one willy-nilly.
• Car loan
Who doesn’t want the convenience of a car? However, a car is a depreciating asset, that is, its value will fall each year. However, its fuel and maintenance costs will rise annually. So, factor these in before you take a car loan.
Tips: It’s a good idea to pay at least 50 percent of the price of the car from your own pocket and take a loan for the rest. In this way, you won’t spend a bomb in the form of interest.
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