There is no rule of thumb when it comes to determining how much unsecured loan you can actually manage or financially tolerate. However, there are a few generally promising rules you can follow that will help you become a more efficient manager of loans so that you don’t go overboard and land yourself in a vicious debt trap.
To determine the amount of loans you can manage, understand the following:
Assess Your Current Income and Expenditure
To understand your financial capacity, first analyze your income and expenditure. Decide on how much can you safely displace for loan payments. Once you calculate that number, you can reverse calculate the amount of loans your monthly budget will permit you to take. However, even when calculating your discretionary income available, always keep a small amount reserved for miscellaneous expenses.
Understanding your Debt-Income Percentage
Debt-income percentage assesses what percent of your total income is debt. If your monthly debt is Rs.10,000 on an income of Rs. 50,000, then your debt-income percentage is 20%. This ratio is crucial for understanding your debt load. A healthy debt load should not be more than 35%. This means, roughly at max, 35% of your income can be used to service your debts or unsecured loans.
Set Your Financial Priorities Straight
Your financial priority will play a major role in determining how many unsecured loans you can manage. Most people have long term goals and save for things like retirement, marriage, higher education, etc. If you have these long-term financial priorities, then you may want to draw a smaller loan amount.
Remember, responsible debt management is key to maintaining financial well-being. Regularly reassess your situation as your circumstances change and adjust your debt management strategies accordingly. With a pragmatic outlook and approach, you can keep control of your finances and make sure that you don’t fall into a debt pitfall.
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