Disease not only affects a person’s health, but sometimes it also shakes the financial condition of the entire family. When suddenly huge medical expenses arise, many people are left with no option but to take a loan. But if that debt is not handled on time, it gradually turns into a trap from which it becomes very difficult to get out. One such story is of a 36-year-old man living in Pune, which was shared by investment advisor Vivek SG on LinkedIn. This story became popular on social media because it tells how even a responsible and wise spender got stuck in huge debt due to a medical emergency.
According to Vivek, this person works as an operations manager in Pune and his salary was around Rs 90 thousand every month. Till three years ago his financial condition was normal. He used to spend according to his income and somehow managed the household budget. However, at the end of the month he did not have much savings left.
About Rs 82 thousand were spent on his monthly needs and expenses.
How did this condition worsen?
During this time, his father’s health suddenly deteriorated and he had to undergo a serious surgery. This operation cost about Rs 5 lakh. The family did not have such a huge amount deposited, so it took a personal loan of Rs 5 lakh at 14 percent interest. Because of this loan, EMI of Rs 13,663 started every month. The budget of the house was already very tight, after adding the new EMI on top of that, the balance of its monthly income and expenses got completely disturbed.
Now the situation became such that to meet the necessary household expenses like ration, electricity bill, children’s needs and other daily expenses, he had to take the help of credit card. Initially he thought that the situation would settle down after some time, but it did not happen. Gradually his credit card outstanding increased to Rs 4 lakh. The biggest problem was that the interest on credit cards was around 35 to 40 percent annually. By making only the minimum payment every month, the principal amount kept increasing instead of decreasing.
bad credit score
When he realized that it was becoming difficult to manage so many different debts, he took another decision. He took a new loan of Rs 6 lakh to repay the old loan and credit card dues. His thinking was that all the loans would come together at one place and it would be easy to pay EMIs, but by then his credit score had deteriorated significantly. Due to bad credit score, he also got a new loan at a more expensive interest than before. This time the interest rate was 18 percent and a new EMI of Rs 17,625 started every month.
Instead of improving, the situation kept getting worse. Including various loan and credit card liabilities, his total debt increased to more than Rs 15 lakh within two years. The most worrying thing was that his total EMI every month reached approximately Rs 51 thousand. That means, out of his salary of Rs 90 thousand, about 57 percent was spent only on repaying the loan. It became very difficult to meet household expenses with the remaining money.
Vivek SG says that most people fall into the trap of debt in this way. It starts with just one loan, but due to increase in EMI, the money left in hand reduces. Then one has to take another loan to meet daily expenses. After this, a new loan is taken to repay the old loan and this sequence gradually becomes a big financial crisis. He also said that excessive use of credit cards makes such a situation worse. Because the interest rates on these are very high. If full payment is not made on time, late fees and interest add up to the outstanding amount rapidly. Apart from this, due to continuous delay in payment, the credit score also falls, due to which future loans become expensive.
What advice did the guy give?
According to Vivek, if a person’s total EMI exceeds 40 percent of his monthly income, then it should be considered an alarm bell. At such times it is important to avoid taking new loans. He advised that first of all make a complete list of all your debts. After that, try to eliminate the debt on which the highest interest is charged on priority basis. This will gradually reduce the total interest burden and it may become easier to handle the financial situation.
Many people also expressed their opinion on this post. Many users said that every family should create a strong emergency fund according to their income so that there is no need to take expensive loans for sudden medical expenses.
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