What do you do when your boss doesn’t give you a pay hike but the cost of living continues its upward swing? You have to borrow money either from a bank or from friends.
In the last few years, low-interest loans lead to a buying boom and heavy consumer demand. According to India’s largest national bank State Bank of India, the national economy is paying the price of cheap money as debt problems in Indian households have increased by 58% in the past 5 years. The household savings have dropped by 6% in 5 years, which is the heartbeat of the economy. Consumer debt has gone up by 58% to Rs 7.6 lac crore in the past 5 years, all thanks to low-interest loans.
“Declining savings, especially household savings, is a major challenge for the economy and is leading to structural growth slowdown,”
Said – Devendra Pant, chief economist, India Ratings and Research.
A sneak peek at the Indian household debt industry
- Each individual is carrying a debt load of about Rs 16,239 in India.
- Home loans constitute 52.4% of the total household debt in India.
- Personal loans comprise 31% of the total consumer debt.
- Credit cards have captured 3.9% of the total consumer debt.
- Vehicle loans constitute 3.4% of the total household debt.
- Student loans constitute 3.2% of the total debt.
- Fastest growing debts are credit card debts and personal loan debts. They constitute 35% of the total consumer debt.
Indian household debt statistics – 2013 – 2018
|Financial Year||Household Debt|
|2017-18||Rs 6.74 lac crore|
|2016-17||Rs 3.75 lac crore|
|2015-16||Rs 3.91 lac crore|
|2014-15||Rs 3.77 lac crore|
|2013-14||Rs 3.59 lac crore|
If you follow the table closely, then you’ll realize that India’s consumer debt has jumped 1.8 times from 2016-17 to 2017-18. In the last 5 years, household debt has increased by 13%, which is not low.
Indian household debt in 2019 – How bad is it?
There has been an increase in the level of credit card debt and personal loan debt in the financial year 2018-19. You can get a good idea about this from the table given below.
|FY 2013-14||FY 2018-19|
Personal loan debt has almost doubled during FY 2018-2019. Borrowers use these loans for sponsoring trips, weddings, and paying off debts.
How to deal with consumer debt in India
So what should consumers do now? How should they pay off debts? In India, it’s easy to get into credit card debts especially due to their high-interest rates. The average annual interest rate on credit cards is 41%, which is higher than other types of loans. This table will help to make my point clear.
The average interest rate on the top-grossing credit cards
|Credit card issuer||Average APR|
When you settle debts with banks, they forgive a portion of the total outstanding balance. This helps you to save money.
Suppose, you bought an iPhone at Rs 70,000 with a credit card. Initially, you thought that you would be able to pay off the debt with easy monthly installments. However, after making a few installments, you see that you aren’t able to cope with payments due to a sudden financial crisis. What will you do in this situation? Well, you can do 2 things.
- You can sit quietly and let the credit card debt soar.
- You can settle credit card debts with the bank and be debt-free.
The first option would only sabotage your financial life. The second option would not only help you to get out of debt but also allow you to save money.
How debt settlement works in India
Yes. You have to negotiate hard with the bank because no one would want to lose money. You have to be calm and patient. If you don’t have good negotiation skills, then it’s better to hire a professional debt settlement company to settle your unsecured debts.
Brazil has a 26.7% debt-to-GDP ratio, South Africa has a 33% debt-to-GDP ratio, and China has 50% debt-to-GDP ratio. Russia and India have 16.5% and 11.2% respectively. Apart from that, there’s hardly any good news for Indians. Household debt is increasing at a steady rate of 16.9% in the last 4 years. Consumers should be extremely careful while spending money because the recession is expected to hit the US within 12-18 months. Once the recession hits America, the Indian economy would also get affected, especially the job market. It’s better to get and stay out of debt to avoid massive financial problems in the near future.