“Rs. 500 and Rs. 1,000 notes have ceased to be legal tender with effect from 8th November midnight.”
“High denomination notes, no longer currency notes in the country.”
These were a couple of headlines in the newspapers after our Hon’ble PM announced the demonetization of the high-value currency notes with immediate effect on 8 November 2016. This was done with an intent to curb the menace of hoarding black money, counterfeit notes and terror funding. This move impacted one and all, may be in different proportions but the impact was widespread.
At the micro level, it resulted in a scarcity of cash in hand and thus hampered the smooth functioning of the economy, especially for the purchase of daily groceries, local conveyance etc. At the same time, this disrupted the flow of funds in the unorganized sector since cash economy is majorly prevalent amongst the unorganized sector only. Two of the major investing avenues in the country, real estate and gold prices are still bearing the brunt of demonetization.
Here’s how this demonetization saga can be expected to impact your credit health:
- Transition to Plastic Currency – The Govt. has been taking initiatives to promote the use of digital methods of payment, instead of cash. Banks have been promoting their credit cards, highlighting the ease and convenience of use and higher credit limits post-demonetisation. It is normal human tendency to subscribe to easily available debt. However, one must be careful enough to not avail a higher number of credit cards, unless you know the art of managing the due dates. A Higher number of credit cards may also result in unintended higher spending, which can easily trap you into a debt trap. This impacts the cibil score range quite adversely.
- Easier Debt Availability may lure you into longer commitments – Falling real estate prices along with cheaper loans available may lure you to buy a house by availing the loan. However, you must note that home loans are generally over a longer tenor and with floating interest rates. As such, while the interest rates increase, your monthly installments will increase too. Also, you need to be sure whether you can commit yourself to such long-term financing at present. Make sure you weigh all the pros and cons of the transaction before committing yourself to long-term loans, just on the basis of lower rates of property and lower interest rates. This deems importance as a default in home loan EMIs can dent your cibil score range and hence, your further credit availing capacity.
One must indeed be careful about taking a decision about the finances as each decision impacts your financial history in some manner. Make sure you it gets impacted in your cibil score range positively.