Debt is a part of many people’s lives, and understanding how it works will be crucial to managing your money on its best side. Be it a 15 Lakh Personal Loan, which helps to consolidate debt, purchase your dream home, or fund a big purchase, you need to know how different types of debt can impact your financial health. For example, a credit card balance of ₹10,000 with an 18 per cent interest rate can run you over ₹1,800 in interest in just one year if you make only the minimum payments.
Credit Card Debt
| Credit Card Balance | Interest Rate | Monthly Payment | Total Paid in 1 Year |
| Rs 10,000 | 18% | Rs 1,000 | Rs 12,380 |
| Rs 20,000 | 22% | Rs 2,000 | Rs 24,760 |
Here, if you have a Rs 10,000 balance, you can pay Rs 2,380 in interest alone in one year to carry this balance, thereby quickly lowering your financial stability with credit card debt.
Personal Loan
Personal loans are a major expense. Personal loans have relatively low-interest charges compared to credit cards, but they still have a value that compounds over time based on the length of the loan and your interest rate.
| Loan Amount | Interest Rate | Monthly Payment | Total Paid in 1 Year |
| Rs 50,000 | 15% | Rs 4,500 | Rs 54,000 |
| Rs1,00,000 | 12% | Rs 9,000 | Rs 1,08,000 |
You can expect to pay ₹54,000 for a year on a ₹50,000 loan at 15% interest. That may be manageable, but it will surely strain your pocket if proper budgeting is not considered.
Mortgage Debt
A mortgage is one of the biggest debts many people incur, especially when buying a house. Although mortgage rates are typically lower than others, it calls for significant long-term commitments in many cases of 15 to 30 years.
Example:
| Home Price | Down Payments | Loan Amount | Interest Rate | Monthly Payment | Total Paid in 10 Years |
| Rs 50,00,000 | Rs 10,00,000 | Rs 40,00,000 | 8% | Rs 38,000 | Rs 45,60,000 |
If you finance Rs 40,00,000 to buy a house, you would have paid Rs 45,60,000 at the end of 10 years; that will come to an interest repayment of Rs 5,60,000 towards the price of that house. Mortgage debt can tie up a substantial part of your income, making other financial goals harder to achieve.
Students Loans
For the most part, student loans carry with them a lower interest rate. But they do have a way of following you for years, impacting your ability to save or make big purchases.
| Loan Amount | Interest Rate | Monthly Repayment | Total Paid in 10 Years |
| Rs 4,00,000 | 10% | Rs 5,500 | Rs 6,60,000 |
Car Loans
Auto loans finance the purchase of cars. Most auto loans have lower interest rates than credit cards and loans but contribute to your budget every month.
Example:
| Car Price | Down Payment | Loan Amount | Interest Rate | Monthly Payment | Total Paid in 5 Years |
| Rs 7,00,000 | Rs 1,00,000 | Rs 6,00,000 | 10% | Rs 13,000 | Rs 7,80,000 |
Auto loans are typically short-term loans, but even with the ₹6,00,000 auto loan, you’d pay ₹7,80,000 over five years. Be sure that your car loan pays for itself as part of your existing budget to avoid financial pain.
Conclusion
Different types of debt affect your finances, which is crucial for managing your money. Budget responsibly and intelligently decide about your debts; that is the surest way to reduce financial stress and control your future. Make high-interest debt a priority and ensure that any loans you accept can be serviced comfortably.
Frequently Asked Questions
- What’s the best strategy for managing multiple forms of debt?
Pay off high-interest debts first while making minimum payments on other forms of debt.
- Can debt ever be a positive financial force?
Yes, if you use them responsibly, such as with a mortgage or an inexpensive personal loan.
- How can I pay off my debts quickly?
Pay more than the minimum and refinance at lower interest rates.
Q: How does debt impact my credit score?
On-time payments raise your credit score, whereas late and missed payments significantly lower it.
