Nitin Desai Suicide: Keep Your Repaying Capacity In Mind Before Taking Loans

It’s important to strike a balance between personal aspirations and financial obligations to pave the way for a stable and secure future
Nitin Desai Suicide: Keep Your Repaying Capacity In Mind Before Taking Loans

The recent and unfortunate demise of renowned art director Nitin Chandrakant Desai has once again shed light on the crucial topic of financial management. Desai committed suicide, reportedly on account of financial distress.

Now, Desai’s loan of Rs 252 crore has ignited discussions about the importance of understanding one’s financial limits and planning for a comfortable repayment strategy.

Given that financial decisions can significantly impact our lives, it becomes all the more essential to delve into the intricacies of borrowing wisely, and thus ensure a balanced approach to managing loans.

The question that arises in the wake of such news is: How can one determine the right amount of loan to take, so that it can be comfortably repaid without becoming a burden?

This query delves into the heart of financial literacy, emphasising the need for individuals to be well-informed and mindful when making borrowing decisions. Striking the right balance between personal aspirations and financial obligations can pave the way for a secure and stable future.

Says Suresh Sadagopan, founder and principal of Ladder7 Financial Advisories, a financial planning firm: “People take loans and they know they will need to return it with interest. Such cases of someone taking their life due to the burden of debt is regrettable. But the person concerned should take the level of loan that can be serviced.” 

“Knowing how much loan to take, which will be based on what you are taking the loan for, is important. If it is for a business, one needs to have an estimate of the cash flows coming from there through which the loan can be serviced. If it is for buying a home or something else, one needs to have the cash flow to service the equated monthly instalments (EMIs) comfortably. Beyond that, one should not take a loan,” adds Sadagopan. 

In this context, here are some steps one should consider when taking out a loan to ensure that one can comfortably repay it and avoid getting stuck in a debt trap.

Assess Your Financial Situation: Before taking a loan, thoroughly evaluate your current financial situation. Calculate your income, expenses, and existing debts. Understand your cash flow and how much you can realistically allocate towards loan repayment.

Budgeting: Create a detailed budget that outlines all your monthly expenses, including loan payments. Make sure you have enough income to cover your living expenses while also repaying the loan.

Loan Affordability: Only borrow an amount that you can comfortably afford to repay.

Says Nita Menezes, Founder and CEO, Financially Smart, a financial planning firm: “A common guideline is that your monthly debt payments (including the new loan) should not exceed a certain percentage of your monthly income, often around 30-40 per cent. This ensures you have enough disposable income for other essentials.”

Interest Rates And Terms: Menezes says it’s equally important to understand the interest rates, repayment terms, and any additional fees associated with the loan.

“A lower interest rate and longer repayment term can result in more manageable monthly payments,” she adds. 

Emergency Fund: Maintain an emergency fund that covers at least 3-6 months’ worth of living expenses. This safety net can help you manage unexpected financial challenges without resorting to additional borrowing.

Future Income Projection: Consider your future income prospects. If your income is expected to increase, you may be more comfortable taking on a larger loan. Conversely, if your income is uncertain, it’s wise to be cautious with borrowing.

Alternative Funding Sources: Explore alternative ways to meet your financial needs, such as saving up for a purchase instead of borrowing or seeking grants, scholarships, or assistance programs.

Diversify Debt: If you have multiple debts, it is best to diversify them.

Says Menezes, “Avoid concentrating all your debt in one area, as this can increase the financial risk.”

Financial Advisor: Consult a qualified financial mentor and/or coach who can analyse your financial situation and help you make smart and informed decisions, as well as provide advice based on your unique requirement. They can help you make informed decisions about borrowing and managing your finances.

Regular Review: Regularly review your financial situation and adjust your budget and repayment plan as needed. With changing life circumstances, adapt your financial strategy accordingly.

Moreover, people with uncertain cash flow like people in business should not take a large amount of debt, as sudden loss of income would impact their financial standing and they could lose their assets as well.

Says Abhishek Kumar, founder, and chief investment advisor at SahajMoney: “Ideally businessmen should not take loans unless the amount of annual interest payment is more than four times their annual profit. Also, they should at least keep liquid assets which could cover a year of interest payment in case they suffer a loss of income due to market conditions.”

Always keep in mind that taking on debt is a serious financial commitment, and it’s important to be cautious and well-informed before making any such decisions. It’s most important not to fall into the debt trap. The goal is to use loans as a tool to achieve one’s financial goals, rather than getting trapped in a cycle of debt. 

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