There is no escape from EMIs in today’s day and age. That was a casual remark by a friend but it got me thinking about how we have embraced debt and made it an intrinsic part of our lives.
It all starts with that small loan for a phone we always wanted to buy and we plunge right in as soon as we get our first salary. Soon after, when we start living independently, a consumer durable needs to be bought. Even if it’s not affordable, we go ahead, and there comes another EMI in our lives. If there’s an education loan EMI to take over from parents, well, that too, then.
As we add years and income to our lives, we need to reckon with newer EMIs. There is the car EMI, which seems to be a never-ending loop. By the time we finish paying for our first car, it’s time to “upgrade” because everyone around us has a bigger and shinier car, and there starts a brand-new EMI, often higher than the earlier one. Then comes the mother of all EMIs, the one to help us buy a house.
Throw in a few buy-now-pay-later schemes and credit card EMIs to replace the gadgets (read laptops and phones) most of us can’t do without, and we are saddled with three-four EMIs at any given point.
My friend’s remark was not just about our indebted lives but also about the financial insecurity it breeds. She recalled the distress she faced during Covid when her job became uncertain, and suddenly the EMIs she could afford all along felt like a noose around the neck. After the uncertainty dissipated came the rate hike cycle. The EMIs that stopped pinching for a while went up by 20-25 per cent and started feeling like a noose again.
Does that mean you should never borrow? The answer is no in most cases, especially when there are legitimate needs you cannot fund on your own and are confident of making timely repayment.
But deciding what to borrow for and when and how much can help you better negotiate your debts. Deciding what to borrow can be simple. For instance, you can’t avoid replacing a broken phone, but you need not switch to the latest model if the earlier one served all your professional requirements. Likewise, a house you like and can afford is a good buy anytime, but the best deal may not be for you if the house is somewhere you can’t move to.
The when and how much to borrow are decisions that are entwined. The answer to the first will depend on whether you have savings and your current and expected income capacity. Once you get these answers, the other question will get addressed on its own.
The same exercise will serve well for most loans, but as the ticket size increases, the questions you must ask yourself and the decisions you must take will become harder.
Easy loans can only make life easier until they cease making it easy. Grill yourself thoroughly before you add another EMI in your life, rate hike or no rate hike. If you are honest with yourself, debt need not become a burden but a friend in need.