The Dangers of Digital Debt: What Every Teen Needs to Know.

In our world when money moves at the blink of an eye, or a click of a button, you must be very careful with monetary transactions. While you order food, buy clothes online, or subscribe to your favorite channels- all within seconds, in an effortless digital manner, we should be conscious of digital finance. Our loans, our payments happen digitally, so we should be wary of the trap of digital debt or fraud. Hence, we should know what it means, and how to avoid falling into it. Digital modes of payment like UPI payments, Buy Now Pay Later, digital wallets have made our financial transactions easier, it has also created soft but dangerous nets like loans that can potentially ruin one.  

What do you Understand by Digital Debt? 

By digital debt we mean the debt you incur as a result of using online or digital credit modes, apps or platforms. In short it refers to:

• Overuse of credit cards 

• Taking small loans from digital lending apps

• Overspending through UPI-linked wallets or online shopping

• Missing EMI of the same.

Since your cash does not leave your wallet, you tend to assume that you are not spending money but the truth is far different. You are spending money on which interest can build up fast.

Why is Digital Debt Dangerous? 

1. It is invisible: although digital payments are easy, and effortless so we do not realize the impact of spending money. We do not see cash actually leaving our hands, hence tend to overspend or indulge in impulsive buying. The taglines, “Its just 299 a month” which sounds so innocuous that we tend to ignore that trap it sets. When you have multiple such subscriptions and bills piling up, your account is drained off its savings.

2. BNPL does not ensure Free Money 

The Buy Now, Pay Later trap is the most fatal one since it sounds so hassle-free and friendly – but what happens if you cannot pay later? What can be the consequences? You end up paying late fees, interest and damage your credit credibility as well. Some platforms charge heavy rate of interest as much as 24%-36% if you miss payments.

3. Digital Lending Apps are very Risky

Many apps offer instant hassle-free loans with no paperwork. But such offers generally some with some stings later as

• Hidden Charges

• High interest rate 

• Aggressive collection practices 

             They might even violate your privacy or share your data or shame you should you fail to pay in time. 

4. Debt Grows Quietly and Quickly:

If you pay only pay the minimum due on a credit card payment or delay a payment, the interest compounds dramatically and can multiply within no time. So a 1000 Rupees can compound into 3000 so quickly.

5. Your Credit Score will be Adversely Affected

Many teens do not realize that a missed payment or late digital payments can be reported to credit bureaus. A low credit score can:

• Affect your ability to get loans later

• Increase your interest rates in the future

• Limit your financial freedom as an adult

 Early signs that you are Falling into Digital Debt 

• You’ve lost track of your subscriptions or auto-debits

• You borrow money from friends to repay the loans

• You are constantly delaying payments of your EMI 

• You are using one app to pay the debts incurred in another one

If this is happening to you, it is time to pause and breathe.

How to Avoid Falling into This Digital Debt Trap:

1. Use only one Debit-Only for Regular Spending

  Stick to prepaid cards, debit cards or UPI Linked cards so that you are conscious of your spending.

2. Avoid Buy Now Pay Later schemes for unimportant and avoidable Items

If you cannot pay upfront, ask yourself if you really need that thing badly you are trying to buy. Do not use the scheme for food, clothes or for subscriptions. 

3. Track all Your Subscriptions and EMI: 

Use budgeting apps: Walnut, Goodbudget or Money Manager so that you are conscious about spending money. Every penny saved is a saving so be careful

4. Understand the Fine Print: 

Before borrowing a loan or going for the BNPL app, check for the interest rate, late fees consequences, payment schedule and whether it reports to credit bureaus. 

5. Create a Monthly Spending Limit:

Set a spending ceiling. Divide it into categories as essentials, entertainment and savings/ investments. If you reach the limit, pause and take a breath.

Create Healthy Digital Finance Habits for yourself

• Always pay on time and in full

• Avoid using credit cards for things that depreciate in value

• Use spending trackers to keep a check on your expenses and impulses

• Learn how credit scores work right now so that you don’t regret later

Finally, digital payment methods are easy to use, very convenient and also empowering but they come with a price. If we are foolish and stupid, the debts will spiral beyond control and you lose your peace of mind and your credibility. So be wise. Spend consciously. Also remember that because you can pay for now does not imply that you can pay later. So, think twice before incurring those debt. Money is for making our life comfortable but do not let it trap you.