You must ensure that you make loan repayments regularly, as the moratorium period has ended
With the uncertainty the pandemic has brought in our lives, people have become conscious and concerned about their financial well-being. In most cases, the immediate consequence of any stress in the economy is a rise in the cost of living, as expenses spike.
During any crisis, prudent financial planning helps us overcome challenges and emerge less impacted. An adverse event, such as a pandemic, does not announce its arrival in advance and can easily catch us off-guard – especially if we are unprepared.
Unforeseen expenses could lead to varied spends on medical treatment, rise in the price of groceries, or bulk purchases of household items and daily necessities. These, along with the risk of pay cuts could easily weigh us down. According to data from Experian’s Global Insights Report, 43 per cent of Indian consumers have indicated that their household income has declined since the onset of the pandemic. If faced with job losses, furloughs and pay cuts, it is important to accept the situation practically and manage with a calm and clear mind.
Here are some measures that can help you stay prepared and tide over financial stress.
Keeping a watchful eye on cash flows
Prioritising your cash inflows and outflows goes a long way in securing your finances. Categorise your spending into ‘absolute necessary’ and ‘discretionary’ and create a budget for everything. Focus on essential expenses such as groceries, utility bills, education fees, and most importantly, EMIs for loans and credit card dues. It is best to put off unnecessary shopping that increases expenses, especially if the requirement is not immediate.
Maintaining financial discipline
One of the key steps to improving your credit score is to clear all outstanding dues (on a month-on-month basis). Disciplined and timely repayment of your credit card dues helps build good repayment record, enabling you to meet your larger needs and getting access to higher loan amounts.
In case you opted for the EMI moratorium, do ensure that you make the payment regularly post the moratorium period. As per RBI guidelines, the moratorium on your loan repayment is not considered as an adverse indicator and will not directly impact your score. However, you must bear in mind that a credit score is a composite value based on many factors and there are other parameters such as multiple new loan enquiries or unusually high jump in credit card utilization, to name a few, which could impact scores. In addition to the moratorium, RBI has also allowed banks and lending institutions to offer loan restructuring options to consumers. One may take these options after considering their financial impact.
Also, it helps to monitor your credit report and credit score to ensure that your bank has reported the data correctly. Checking your credit report at such times helps in identifying any issues.
Once things get better, make sure you maintain liquidity for medical reasons. Exigencies that arise during such times can take a toll on your emotional as well as financial health. So, manage your finances to ensure liquidity to meet unexpected costs. Although digital transactions are preferred, there could be stores that may not have the merchant acceptance infrastructure, or the point-of-sale (POS) devices may not be functional. In such cases, ready cash is the only mode of payment that will get you going. Try to maintain adequate balance in your liquid accounts and do not exhaust your credit card balances.
Being vigilant about frauds
In the past few months, while customers have increasingly adopted digital transactions for various bill payments, there has also been a rise in online frauds.
-Shred documents containing sensitive information before discarding them
-Do not share OTPs, credit / debit card CVV numbers and net banking passwords with anyone
-Refrain from using public Wi-Fi for logging into bank accounts or conducting online transactions
-Avoid storing confidential information such as passwords or important dates on your mobile phones, which can be used very easily by fraudsters
-Install identity theft detection apps on your phone and download the apps from an official app store
Most importantly, keep monitoring your credit report and bank statements at regular intervals and report any unusual or suspicious transactions.
Inculcating values of thrift and self-reliance
What is a better option than taking a loan? Relying on own funds of course! A loan will only add to your financial burden, so to be self-reliant in the future, you need to start saving if you haven’t already. Make sure you have some amount of saving for health emergencies even if it means postponing discretionary spends. In fact Experian’s Global Insights Report has highlighted a similar trend where consumers have resorted to creating / using more personal budget (31 percent), reducing discretionary spending (25 percent) and saving more in emergency funds (24 percent).
Prudence calls for building a balance equal to at least three month’s salary to tide over difficult times. One of the best ways to do this is by automating your savings through mechanisms such as recurring deposits and investing in plans that don’t have a mandatory lock-in period, allowing you to withdraw anytime. Avoid taking any unnecessary risks in speculative schemes.(The writer is Country Head and Managing Director, Experian India)