For the broad picture of which debts are “good” and which are “bad”, and a four-question test before you borrow, read our main guide: why avoiding bad debt is the ultimate financial strategy. This post does one thing: puts rupee figures on what bad debt actually costs, so the decision is easy to see.
What we mean by bad debt
Bad debt is borrowing that costs a lot and buys you nothing that lasts: a revolving credit card balance for everyday spending, short loan-app loans that get rolled over, buy-now-pay-later for things you couldn’t otherwise afford. It isn’t about being in debt at all. A planned personal loan with a clear EMI can be perfectly sensible; the same amount spread across expensive, short, rolling loans can wreck a budget.
One amount, four ways to carry it for a year
Cost of carrying ₹75,000 for 12 months
Illustrative figures, not offers. App loans: 10% fee per monthly rollover plus 1% a day, about ₹30,000 a month. Credit card: an illustrative 3.5% a month finance charge plus 18% GST, paying only the charges each month. One loan: 2% a month flat plus a 4% fee, repaid over 12 months (EMI about ₹7,750). Personal loan: 11% a year on a reducing balance over 12 months (EMI about ₹6,630), before processing fee and GST. Your actual cost is in your own statements and the Key Fact Statement.
The gap between the top bar and the bottom two is the whole case for staying out of bad debt. It isn’t a few thousand rupees; on these illustrations it is more than a year’s rent in many Indian cities.
The costs that never show in the interest rate
Fees and GST
Late fees, bounce charges, rollover or “extension” fees, and GST on top. On short loans these can be bigger than the interest.
A lower credit score
Missed payments stay on your report for years. Lenders then offer smaller amounts or higher rates, or decline, so bad debt makes future good debt dearer.
A shrinking salary
When EMIs and rollovers take a big share of each salary, there is less for essentials, which pushes you to borrow again. That is how a debt trap forms.
Stress and harassment
Unregistered apps may use abusive recovery. Genuine lenders must follow RBI’s fair-practice and recovery rules; check any app in the RBI directory of digital lending apps.
Is your debt costing more than it should?
- You pay only the minimum due on a credit card most months.
- You have taken an app loan to repay another app loan.
- Your EMIs and loan repayments take more than about half your take-home pay.
- You don’t know the total you owe, or the annual cost (APR) of each loan.
- You have been charged late fees in two or more of the last six months.
If two or more are true, the numbers above probably apply to you in some form. Our guide on getting out of a debt trap covers every debt type in detail.
How to get out, cheapest first
List every debt with its true cost
Amount, lender, monthly outgo and APR. For app loans, include fees and daily charges; they are usually the most expensive line.
Stop adding to the top of the list
No new app loans, no new card spending you can’t clear in full. This alone stops the bill from growing.
Replace the most expensive debt first
Swapping rolled-over app loans for one fixed EMI is usually the biggest single saving. SmartSwitch is built for this; the calculator shows your own numbers. Read when debt consolidation makes sense.
Clear card balances next
Pay more than the minimum, and stop the balance from revolving. Our post on credit card overdues explains the score side.
Build a small cushion
Even ₹1,000–₹2,000 set aside each salary day breaks the cycle of borrowing for every surprise.
Where Omozing fits
Omozing, the lending brand of RBI-registered NBFC Aparampaar Finance, lends to salaried people across India with a credit score from 600 and a take-home salary of ₹40,000 a month. Rates start from 11% a year, and the exact rate, fees and APR are in the Key Fact Statement before you sign. With SmartSwitch, the money goes to your own account, you close each app loan within about seven days and share the NOCs, and you are left with one EMI. We never ask for any fee before approval.
Paying for app loans every week?
See what one EMI could save you compared with rolling them over.
Frequently asked questions
Why is it important to stay out of bad debt?
Because it is expensive. High charges, fees and GST on short or revolving debt can cost many times more than a planned loan for the same amount, and missed payments lower your credit score, making future borrowing dearer.
What is the most expensive kind of debt in India?
For many salaried borrowers it is short loan-app loans that get rolled over, because fees and daily charges add up quickly. Revolving credit card balances are also costly once GST on finance charges is included.
Is a personal loan bad debt?
Not necessarily. A planned personal loan with an affordable fixed EMI can be a sensible way to handle a big expense or to replace more expensive debt. It becomes bad debt when it funds spending you can’t sustain or when EMIs strain your salary.
Should I take a loan to pay off app loans?
Replacing several expensive app loans with one affordable EMI usually saves a lot, as long as you close the app loans and stop taking new ones. Check the full cost in the Key Fact Statement first.
How do I know the real cost of my loan?
Look at the APR in the Key Fact Statement, which regulated lenders must give you before you sign. It includes interest and fees, so you can compare loans fairly.
Does paying only the minimum due on a credit card hurt?
It avoids a late mark, but the rest of the balance keeps attracting finance charges plus GST, so the debt shrinks very slowly and costs a lot over a year.
Omozing is the digital lending brand of Aparampaar Finance Private Limited, an RBI-registered non-deposit-taking NBFC. Loans are subject to credit assessment. See our regulatory disclosures and grievance redressal process.