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How young earners can manage their debt

Striking a balance when allocating income is important for a young earner. Take a look at this employee's example to draw lessons.

Sep 16, 2019, 06.30 AM IST
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The critical component is the loan and any default would impact the credit score.
Atul has just completed his postgraduation and has been working for the past six months. He lives with his parents and is single. He had thought that he would be able to save most of his salary, but finds that he pays a sizeable amount as EMI for his education loan, his car loan and is expected to pick up several household expenses. He has been using his credit card, but worries about the debt piling up. He is reluctant to bring up up the topic with his parents. How should he manage his finances?

Atul should immediately start striking a balance between his income and expenditure. Since a good part of earnings goes towards serving his loans, there is a limited amount of money available for other expenses. It is important for him to allocate it realistically.

The critical component is the loan and any default would impact his credit score. This would affect his ability to take any loan in future. It might be helpful if he is able to evaluate whether he needs a car so early in his financial life. He may want to accept that the purchase was impulsive, sell the car and pay back the loan. A car is a depreciating asset and investing in it so early in life would affect other aspects of spending. Taking this step would also enable him to explain to his parents how he has taken harsh decisions about his money. He can then bring up the education loan, and fast-track the repayment, explaining to his parents that he would like to become debt-free so that he is able to spend better.

While he is prepaying his educational loan, with the savings from the car loan, he would anyway have a limited amount of surplus to spend on other things. He should be able to tell his parents that his finances will be back on track once the loan is out of the way, and fix a time frame for the same. He can request their understanding till then. Post that, he should contribute a fixed amount every month towards household expenses, and ensure that he is contributing a good portion of his savings on rent and other expenses as if he were not staying with his parents.

If he limits his spending and demonstrates to his parents that he does not have too much to spend, he will manage to bring down their expectations, and manage his finances better.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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