India’s youngest workforce is increasingly slipping into a dangerous debt spiral. Easy digital lending, credit cards, and buy-now-pay-later (BNPL) options have made borrowing faster than ever. As a result, many Gen Z earners making ₹30,000–₹40,000 per month are reportedly accumulating debts as high as ₹30–₹40 lakh. Financial experts warn this trend could become a major risk if not addressed early.

Here’s a closer look at why young borrowers are falling into the debt trap and the warning signs to watch.

A Real-World Example of Debt Escalation

The growing problem becomes clearer through individual cases. According to a media report, Pune-based Vidyut Sharma began freelance photography at age 19 and initially took small loans to purchase camera equipment. Over a few years, those borrowings snowballed into nearly ₹40 lakh in total debt.

Within four to five years, the liabilities were spread across 54 separate loan accounts, most of them unsecured borrowings from fintech apps, NBFCs, credit card issuers, and banks.

Sharma later realized that constant instant loan offers made it seem unnecessary to spend from his own pocket. However, once EMIs started getting delayed, the situation worsened quickly. Frequent recovery calls—sometimes 15–20 per day—created severe stress. Eventually, he sought help from a debt counselling firm, which helped restructure the dues and reduce the outstanding amount to around ₹5 lakh.

His case reflects a pattern now becoming increasingly common among young borrowers.

How the Debt Cycle Typically Begins

In many situations, the debt problem does not start with large loans like home or car finance. Instead, it begins with multiple small unsecured borrowings used for:

• Gadgets and electronics




• Travel expenses




• Lifestyle purchases




• Daily cash shortfalls

Because these loans are quick and largely paperless, borrowers often underestimate the long-term burden. When income falls short of total EMIs, many individuals take fresh loans to repay older ones—accelerating the debt spiral.

Debt relief firms report that every month, hundreds of people aged 25–35 are now seeking help to manage excessive liabilities.

Why Gen Z Borrowing Is Rising

Recent trends suggest younger borrowers are dominating new credit demand.

Key data points:

• Around 41% of new credit users belong to Gen Z




• Nearly 65% of NBFC and fintech borrowers are young customers




• Default rates in small-ticket loans (below ₹50,000) are rising




• Stress in the microfinance segment has reportedly climbed to about 6.2%

Experts attribute the surge to a mix of technological, economic, and social factors.

Major Drivers Behind the Debt Trap 1. Instant Loans via Mobile Apps

Digital platforms have drastically reduced borrowing friction. Loans that once required documentation and waiting periods are now approved within minutes.

2. High Interest Rates

Many unsecured digital loans carry 18% to 48% annual interest, significantly increasing the EMI burden.

3. Rising Living Costs vs. Flat Salaries

With inflation pushing up lifestyle expenses while entry-level salaries remain modest, many young earners rely on credit to bridge the gap.

4. Social Media Lifestyle Pressure

Online trends and peer comparisons are encouraging higher spending on travel, gadgets, fashion, and experiences—often funded through credit.

Warning Signs You May Be Overleveraged

Financial planners highlight several red flags that indicate rising debt risk:

• EMIs consuming more than 50% of monthly income




• Credit card usage touching 80–90% of the limit




• Borrowing for essential monthly expenses




• Taking new loans to repay existing ones




• Paying only the minimum due on credit cards

Ignoring these signals can quickly push borrowers into a repayment crisis.

The Bottom Line

For Gen Z, easy credit is a double-edged sword. While digital lending has improved financial access, uncontrolled borrowing—especially high-interest unsecured loans—can rapidly become unmanageable.

Young earners should focus on budgeting, limiting discretionary credit use, and ensuring total EMIs remain within safe income limits. Building financial discipline early can prevent a short-term convenience from turning into a long-term debt burden.