What’s in the blog?
In this blog, we explore India’s growing middle-class debt crisis and why a rising income isn’t translating into financial security. Backed by recent data and real-life observations, it uncovers how lifestyle loans, unchecked EMIs, and consumerism are silently eroding financial stability—and what practical steps you can take to avoid the trap and reclaim control of your money.
In my long experience in the field of finance, I’ve seen people earning well yet struggling to make ends meet. I’ve seen people drowning in EMIs while believing they are building wealth. So when I read Saurabh Mukherjea’s latest insights on India’s middle-class debt crisis published on Business Today, I wasn’t surprised. If anything, it confirmed what I already see happening around me.
As a reader, I want you to take a pause and think – are we truly progressing, or are we just financing a lifestyle we can’t afford?
The Debt Trap Engulfing the Middle Class’s Financial Stability
You want to listen to the numbers?
- Over the last decade, credit card and retail loans have jumped from 4% to 11% of total banking credit.
- Nearly 45% of middle-class borrowers are subprime, meaning they’re at high risk of default.
- A staggering 67% of middle-class Indians have taken personal loans, not for investment, but just to keep up with everyday expenses.
All this data comes from the RBI. But truly speaking, we do not need statistics to see the problem. We can just look around.
- People in their 20s and 30s are funding vacations, iPhones, and designer goods through credit cards or Buy Now, Pay Later (BNPL) schemes.
- Home loan EMIs are eating up more than 50-60% of income, especially in expensive cities like Mumbai, where real estate appreciation is minimal.
- We are creating a culture where loans are no longer for emergencies or wealth creation, but a way to sustain a lifestyle that isn’t backed by real financial strength.
Do you not see these debt traps engulfing the financial stability of the middle-class families? It is happening all around us, right? But why?
source – Business Today
Who’s the Culprit Behind This Looming Danger for Middle Class Families?
It’s now backed by strong data that middle-class families are getting more and more stuck in the loop of debt. And, the saddest part is that a major portion of these debts fund ‘lifestyle consumption’ and not for wealth creation.
Over the last decade, NBFCs and fintech startups have aggressively targeted the ‘aspirations’ of the middle class. The middle class has been offered easy loans with minimal paperwork to fulfill dreams beyond their financial capacities.
The pitch to attract the middle class with big dreams is very simple: “Why wait when you can afford it today!” The funny thing about this capitalistic approach is that they actually make you afford those things today, but skip to tell what happens tomorrow!
A high-paying job today doesn’t guarantee financial security tomorrow, especially if most of your earnings go toward repaying high-interest debt.
Is There a Way Out of The Debt Trap?
As someone who has been helping people to take control of their finances, I believe the solution to this is simple but requires discipline. If you are willing to take steps to keep yourself safe from the debt trap, here are simple rules to follow:
Invest before You Spend
This may sound cliché, but that’s the best thing you can do to build your wealth. You should commit a minimum of 30% of your income towards long-term investment and wealth building. This can include SIPs, mutual funds, stocks, or even retirement funds. Start doing this today, and your future self will thank you.
Cap Your Lifestyle Expenses
There’s nothing wrong with aspiring for a better lifestyle or spending on things you desire, but there should always be a strict boundary. Many middle-class households spend 30-35% on discretionary expenses, leaving little for savings or emergencies. If you love, you can spend on international vacations, gadgets, and luxury brands, but make sure that the expenses do not cross the 10-15% mark.
Learn to Differentiate Between Good and Bad Debts
The way we talk about debt trap, it’s easy to assume ‘debt’ is inherently bad. But, you need to understand that not all debts are bad. A home loan, for example, in a growing market can be an investment. But in cities like Mumbai, where property appreciation is slow, it’s just a massive liability. A car loan for a luxury car is pure lifestyle expense that starts depreciating as soon as you drive out of the showroom. Credit card is the worst kind of borrowing if you can’t (or don’t) pay in full every month.
Put a Cap on Your EMIs
If more than a third of your salary goes in paying off loans you are definitely doing something wrong with your finances. In any condition you should put a cap of 30-35% of your income for paying your EMIs. Crossing this margin is like walking on a tightrope. One unexpected event like a job loss or medical emergency could throw your finances in chaos.
Think Like a Family
Remember it’s never only you who gets affected by your financial decisions. So, whenever you plan something related to your money think as a part of a family. This is especially important when you are married. Sit with your spouse and plan your savings, investments and expenses together like a team. Working in team is the faster route to wealth creation.
My Take
There’s nothing wrong with wanting the best in life. But the real question is: Do you want short-term luxuries today, or do you want financial freedom for life?
Having a disciplined approach towards finances in the early years can give you financial freedom in your later life. So, be thoughtful towards every financial decision you make. And, if you are already finding yourself running on a treadmill of debts and expenses, you might want to talk to a financial planner and gradually take your finances back on track.
