Finance management is not easy. Whether you are a bachelor salaried professional or a married individual with a family, you have to manage a number of expenses, bills, etc. which can be quite tedious and time-consuming. However, you can't afford to make mistakes if you want to protect your CIBIL score.
The following are some of the biggest financial planning mistakes that you should avoid at all costs to prevent defaulting on a loan:
Life is unpredictable. You might be earning a decent income today, or if you are a business owner, it's possible that you are enjoying a high revenue for quite some time. However, what will you if you lose your job in the future or start going out of business? If you don’t have an emergency fund, then you might not be able to pay your EMIs during the period you are trying to get back on your feet. So, it's highly recommended that set aside a certain portion of your income for an emergency fund. Ideally, it should be enough to help you pay the bills for at least 3-6 months.
An easy way to add your name on a loan defaulter list is to spend your income recklessly. When you don't know exactly how much you are earning every month and how much you are paying in bills, EMIs, and other expenses, you can’t manage your finances properly.
If you don't want to become a loan defaulter, then make sure you take all your expenses into account and create a suitable budget. You should be able to pay your EMIs and save some money for the emergency fund by staying within this budget.
Your credit report is one of the most important financial documents. It shows your credit score, repayment history, and missed payments (if there are any), etc. So, checking it every once in a while can keep you up-to-date with your financial activities and help you identify any errors or discrepancies that your bank might be reporting to the credit rating agency like CIBIL.
People take joint loans for various reasons. The most common one is when they don't a high credit score of their own, they get a co-borrower who has a high score to balance the equation. If someone takes a joint loan with their spouse, then they can also enjoy many tax benefits. However, these types of loans come with their share of risks.
For instance, a married couple can take a joint loan and after a few years, while the loan's tenure is yet to be completed, they may file for a divorce and get separated. In this situation, if either of the co-borrowers refuses to meet their financial obligations i.e. pay the EMIs, then the other co-borrower is also held liable. This is the reason why experts recommend that joint loans must only be taken when no other option is available.
A large number of people still think that health insurance is an unnecessary expense. However, the truth is that it's one of the smartest investments that you can make because:
Apart from these two major benefits, a health insurance plan can also prevent you from defaulting on a loan. This is because when you have insurance coverage, then your financial burden related to healthcare rests with the insurer and so medical emergencies can’t come in your way of paying the EMIs.
Making "minimum payments" on your credit card bills can increase your debt significantly especially if the interest rate is high. Thus, it's better if your lower your credit utilization instead and pay the bills in full. This is also important to ensure that you have enough money saved every month to repay the loans.