‘Spend Now - Save Later’ -- this is the mantra of millennials and Gen Z. This transition in culture can be mainly attributed to aspirational spending and a desire to postpone retirement savings. This leads to unlimited spending at times -- in the absence of expense tracking or awareness about investment habits, a major part of the millennial generation gets into a recurring debt trap.
A recent Morgan Stanley study revealed that 84 percent of India’s millennials are smartphone users and are looking for easy credit options for car ownership or to fund travel plans. Their significant contribution to the nation’s credit market is fuelled by their aspirational desires. This leads them into undertaking heavy interest-ridden debts, paying off high credit card bills and managing multiple EMIs.
The impact of unplanned spending habits
Online shopping patterns show that millennials and Gen Z often spend in the present without anticipating the future debt hassles. Saving and investing for retirement or emergencies is often not a priority. They save the money that’s leftover after monthly expenses and EMI payments. In case they miss payments on credit card bills or EMIs, they end up harming their credit scores and creditworthiness in the long run. As a result, they become non-eligible for future loans whose need may arrive anytime.
Is there a way to manage funds better and stay debt-free?
Here’s how the millennial generation can gradually shrink their debt burden:
Overcome temptations, stop creating more debt
Although reducing the temptation to create more debts alone is not a permanent solution to clear off one’s piled up debts, doing so will certainly bring some relief and prevent you from worsening the situation further. You can do so either by cutting down the need for a credit card or freezing it completely until you repay all your debts, sooner or later.
Paying the minimum of your debts will only stretch the debt period and you will end up repaying the amount for the longest time possible. Doing so will make you pay a much heavier amount that one couldn’t even imagine – maybe twice or thrice the amount you had borrowed. It is advisable to go for small repayments only when you have a debt-ridden strategy as a backup; most importantly, when you are required to pay a large amount for clearing off one of the credit card bills, which otherwise may stress your wallet later.
Create an emergency fund
In situations of higher repayments, an emergency fund can be of great help. Instead of using a credit card, one can use this fund, especially at times of emergency. So, sticking some amount in your savings account in order to be prepared for the future financial crisis that may arrive anytime, totally makes sense.
Be mindful and choose the right mix of investments
Investments in the form of SIPs are a great way of creating the right portfolio balance, which can be utilised to pay off debts. In fact, doing so is even easier today with the advent of so many apps. One can invest in any of the available SIPs or multiple SIPs using the app and purchase them digitally without the need of agents. These small investments not only help clear off on-going debts but also builds a corpus for retirement and future needs.
Make lifestyle adjustments
Lastly, one may need to make minor lifestyle adjustments, especially if you have lavish spending habits. Keeping a check on unnecessary expenses in such situations can help a lot in money management until all debts are repaid. Remember, you can always buy a car later or re-plan a vacation. Such things can wait. Moreover, whenever in debt, never shy to cry out for help from friends or relatives. In fact, approaching a debt counselling centre that offers free advice is one of the best options and is highly recommendable when it comes to cutting down the debt burden or finishing it off, once and for all.
Anuj Kacker is COO and Co-Founder of MoneyTap.
First Published: IST