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Don’t Borrow More than you can repay

Our elders always tell us to only fill how much your pockets can handle. Most of the times our parents ask us to justify our expenses and needs. As we begin earning, we tend to spend more. This goes to the point of wiping off our salary as fast as possible. To top it all, with so many best credit card options we all opt for getting one for ourselves. The utilization of a credit card is something which is not being controlled.

Similarly we shall explain this to you in the form of a case study of Mr. Amit Kumar.

Case – Mr. Amit Kumar has a monthly income of 40,000 per month. He has  two existing loans; a personal loan with 6,000 EMI, used car loan with 11500 per month and a minimum amount of 6500 on his credit card. This means he pays a total monthly EMI of 24000 which is 60% of his monthly income.

So do you think this is a good scenario?

NO!

Let us explain this to you.

Your credit utilization ratio (CUR) must be on the lower side. If it is below 30-35% then it is considered to be good. Here the concept that runs is “Lower, the better”.

When you manage to keep a lower CUR, it shows the bank that you are less dependent on debt and more dependent on your income. This is a good sign for you.

In Mr. Amit Kumar’s case, his CUR is very high and hence it shows that he is more dependent on debt as his income cannot satisfy his needs. This is a bad sign for him.

What can Mr. Amit Kumar do?

Mr. Kumar’s main goal is to clear this debt immediately so he can lower his credit utilization ratio. He can do this by debt consolidation.

A debt consolidation is converting smaller debts into one big debt. With this, you save some money on interest. If Mr. Kumar takes one big personal loan and clears all other smaller loans, he will have to clear only one big EMI. He can focus on clearing this debt.

Ruloans advice:

Getting a best credit card is very easy as the credit card eligibility factors suit both; the salaried and also the self employed individuals. The same goes for used car loan and personal loan eligibility. But it is our job to use this debt as per our needs and ensure it does not affect our credit profile. Maintaining a low credit utilization ratio will benefit you in the long run when you need a loan. Hence spend your money wisely. For any of your loan based queries, you can always bank on Ruloans!

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