X-A chapters / Module 1: Personal Financial Planning
Chapter 4. Debt Management and Loans
When and how much to borrow, credit scores, types of loans, EMI and restructuring maths, and strategies to manage and repay debt.
Total watch time 35 min · Hindi audio
Key topics
- Role of debt, debt-to-income ratio and debt counselling
- Credit bureaus, credit scores and RBI's free credit report
- Secured vs. unsecured loans, P2P and gold loans
- EMI, amortisation, restructuring and loan evaluation
- EMI vs. tenure changes and invest vs. prepay
- Debt payoff strategies: avalanche, snowball, blizzard
Chapter test
25 multiple-choice questions with explanations. Score 60% or more to complete this chapter.
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Take the testFormulas in this chapter (3)
Full formula sheet →Effective annual cost of revolving credit
Ch 4.3Effective annual cost = (1 + monthly rate)¹² − 1
- Example →
- A card charging 3% a month → 1.03¹² − 1 = 42.6% a year, well above the naive 36%.
- Trap →
- The option '36% p.a.' is simple annualisation; the compounded effective rate is 42.6%.
Floating rate: internal vs external benchmark
Ch 4.7 / 4.12Floating rate = Benchmark ± Spread · Internal benchmark: MCLR · External benchmark: e.g. repo rate (EBLR)
- Example →
- When the repo rate is cut, a repo-linked loan reprices at its next reset; an MCLR loan adjusts more slowly.
- Trap →
- Don't swap them: changes in the policy rate pass through faster to external-benchmark (repo-linked) loans than to MCLR loans.
Debt repayment strategies
Ch 4.15Avalanche = highest interest rate first · Snowball = smallest balance first · Blizzard = snowball, then avalanche
- Example →
- Credit card ₹30k at 42%, personal loan ₹1.2L at 21%, car ₹1L at 12%, home ₹15L at 8%. Avalanche: CC → PL → Car → Home. Snowball: CC → Car → PL → Home.
- Trap →
- Definitions get swapped ('snowball = highest interest first'). Learn the general rule, not one example where both orders start the same way.