India’s household debt is rising at a pace far quicker than income growth, especially after the pandemic-driven financial strain. From home loans and personal loans to credit card spending and BNPL (Buy Now Pay Later), Indian families are taking on more debt than ever — often without noticing the long-term burden.
While rising consumption and easy access to credit explain some of this growth, the gap between income growth and household borrowing is becoming a major concern for financial planners.
Here’s why debt is rising so fast — and what borrowers must do right now to protect themselves.
1. EMIs Rising Due to Higher Interest Rates
Over 80% of home loans in India are floating-rate.
When RBI increases rates, EMIs automatically shoot up.
Impact:
Higher monthly outflow
Extended loan tenure
Additional interest burden
Lower disposable income
Many families are paying ₹3,000–₹8,000 extra per month on home loans due to rate hikes alone.
2. Credit Card Usage Has Exploded
Credit card spending and BNPL purchases are growing at 20–30% annually, much faster than income growth.
But credit card interest rates (30–42%) and BNPL penalties silently push families into expensive debt.
Results:
Minimum due trap
Higher revolving balances
Faster debt snowballing
Small purchases turn into big liabilities.
3. Medical, Education & Rent Costs Outpacing Income
Essential expenses like:
School fees
Private healthcare
Transport
Rent
Groceries
are rising 8–12% yearly, while salary increments average 5–6%.
Families often rely on:
Personal loans
BNPL
Credit cards
to bridge the gap — increasing their debt burden.
4. Easy Digital Credit = More Borrowing
Instant loans from apps, fintechs, and NBFCs come with:
Minimal documentation
5-minute approvals
High convenience
But also:
Higher interest rates
Hidden charges
Aggressive renewal prompts
Convenience leads to impulsive borrowing.
5. Savings Have Declined Sharply
Household savings rate in India has fallen to one of its lowest levels in a decade.
Lower savings = more dependency on debt to fund:
Emergencies
Festivals
Travel
Home repairs
Education
Debt begins replacing savings — a dangerous shift.
6. Lifestyle Inflation Among Urban Middle Class
Witheasy EMIs and “zero-cost” schemes, borrowers take loans for:
Smartphones
Bikes
Furniture
Appliances
Vacations
As incomes rise slightly, lifestyle expenses rise faster — widening the gap.
7. Lack of Financial Planning & Emergency Funds
Most Indian families don’t have:
An emergency fund
Health insurance
Budget tracking
Debt repayment strategy
So one unexpected expense pushes them into high-cost borrowing.
What Borrowers Must Do NOW to Stay Safe
Here are practical, immediate steps to prevent debt stress:
✔ 1. Keep EMI-to-Income Ratio Below 40%
If your total EMIs exceed 40% of income, reduce debt urgently.
✔ 2. Pay Off High-Cost Debt First
Start with:
Credit card dues
BNPL loans
Personal loans
These have the highest interest.
✔ 3. Build a 3–6 Month Emergency Fund
This prevents new debt during emergencies.
✔ 4. Consolidate Loans, Don’t Multiply Them
Consider:
Balance transfer
Debt consolidation loan
Converting credit card dues to a lower-rate EMI
✔ 5. Prepay Loans Whenever Possible
Even small prepayments reduce:
Interest burden
Loan tenure
Stress
✔ 6. Stop Using Credit for Everyday Expenses
If groceries and bills are going on credit — it’s a warning sign.
✔ 7. Track Spending With Apps/Sheets
Awareness reduces overspending.
Conclusion: Borrowing Isn’t Bad — Uncontrolled Borrowing Is
Loans help build assets, support education, and improve lifestyle.
But when debt grows faster than income, it becomes a long-term financial trap.
The key is conscious borrowing, regular planning, and avoiding high-cost credit.
With disciplined money management, Indian households can stay financially stable — even in a rising debt environment.
❓ FAQs
1. Why is household debt rising faster than income in India?
Because expenses, interest rates, and credit usage are rising quicker than salaries.
2. Is rising debt a sign of economic growth?
Some borrowing reflects confidence, but excessive debt without income growth is risky.
3. Which debt is most dangerous for households?
Credit card and BNPL loans due to extremely high interest rates.
4. What is a safe EMI-to-income ratio?
Below 40% of monthly income.
5. How can families reduce debt quickly?
By prepaying high-cost loans, consolidating debt, and cutting lifestyle expenses.
Published on : 22nd November
Published by : SMITA
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