Manage debt wisely!

By | April 12, 2014

Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate. Calculate your net worth and see if any of your investments could help you prepay a part of your loans.

Akash was an IT employee who was well settled in his career. With a take home that more than met his needs, Akash decided to invest in his future. Let us see how he managed his finances. He applied for a car loan and a home loan. The car was worth Rs.10 L, a bit of an indulgence but then he had always wanted to own the brand. He then invested in a premium  upmarket 5-bedroom apartment. His spouse Sheela tried suggesting that they should not be so extravagant but to no avail.

She had recently given up her job to take a break and spend more time with her one year old child. With no bulk savings for the immediate future she was worried about the manner in which Akash was spending the sole income they had. To top it off he invested all the money that remained from spending on the EMIs and  his monthly expenses, in stocks. This was the year 2007. They were managing fine till Akash’s stocks started tumbling in 2008. Instead of choosing another avenue, Akash started buying more stocks as they were cheaper during this period. The real shocker came when Akash was laid off when the global recession hit and his company had to cut back on resources to counter the effects.

How did Akash cope? How did he manage to pay his EMIs?

Akash did one smart thing though. He decided to approach a debt counseling centre for his financial hassles. They showed him the right way to manage his finances. They also mediated between him and his bank.

Luckily for him Sheela had an ancestral home back in her home town, which was bequeathed to her. She also had some fixed deposits and some gold that she had invested her savings in when she had an income. Based on the debt counselors’ advice, she obtained a loan against her property. She then helped Akash pay  a portion of the money towards his home loan and another portion towards his car loan as part prepayment. He also obtained written consent from the bank that he would resume repaying his loan once he got a job. In such situations banks do oblige you if you manage to repay most of the money or part of the money if not all as it was a better deal than no money at all.

Sheela whose industry was not so badly hit by the recession went back to  her old job while Akash took a break and got to spend more time with his son. Fortunately for him, his peace of mind was restored thanks to Sheela’s timely aid and the debt counselors’ help.

Six months later he managed to land a good job with a reasonably good pay, though about 20% lesser than his previous pay. He resumed his EMI payments and as banks were slashing interest rates he again negotiated with his bank for a lower interest rate. As it timed with the pressure from RBI on banks for lowering interest rates for existing borrowers also, he managed to come to an understanding with his bank. Agreed, not all can get as lucky as Akash. It was a pretty close brush with fate for him and he could have fallen in a abyss of debt! Yes…he got very very lucky indeed.

However, Akash learnt a valuable lesson for life. He started following simple but smart methods to avert a future disaster.

a. He put aside three months of his pay into a separate account meant to serve as an emergency fund. He planned to put aside 3 more months of pay into that account.

b. He ensured that his current EMI did not exceed 40% of his current income. He manage prepay his home loan at regular intervals to bring this under control.

c. He with the help of Sheela managed to keep his monthly expenses including his loans within 60% of his income and put aside the rest as savings and investment

d. When he invested now he took care to diversify his portfolio and not stick to equities alone to survive a future stock market crash.

Here are some suggestions if you are stuck in debt and do not know how to cope.

– Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate.

– Calculate your net worth and see if any of your investments could help you prepay a part of your loans.

– Make a contingency plan for the immediate future. Talk to your bank along with your debt counselors and explain your situation and see if you can resume your loan at a later date but do make an effort to prepay some amount.

– If it is a double income household try and see if your spouse can support you in the event of a job loss in the short term before you land a job, in case you are suffering from a lay off.

– Manage your current finances judiciously to battle through the current situation and emerge wiser.

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31 thoughts on “Manage debt wisely!

  1. Rasesh H. Parikh

    Most of the people are un aware of this .good Artcile.

  2. Karthik

    Indeed a good article. Me in a similar situation. Could you please tell me who is a debt counselor. How do i contact them?

  3. Rao

    How we can convert our credit card debt into a personal loan debt.

  4. Laksh

    Could you please tell me who is a debt counselor. How do i contact them?

    1. admin

      Debt counsellors are people who counsel you on managing your money and people who provide you solutions to overcome your debt problems in situations where it is possible to do so. Disha, Abhay and few other firms also exist who take care of debt counseling free of charge.

  5. rishi

    A very nice article. However, very few people know about the existance of "Debt Counsellors" and where & how to locate them in a city. So please tell me about good debt counsellors in new delhi.

  6. Manz

    I am in a similar situation as Akash. But I am slowly trying to manage my debt. The first step which I have taken is converting my SCB credit card outstanding to EMI where in the interest rate is less. I have already done this and my first checque is already cleared.

    Process is simple. Call your credit card bank and check if they have EMI scheme for outstanding credit card balance. If they have then please tell them you would like to convert your outstanding into EMI.

    Once you have converted your outstanding to EMI you will not be able to use your credit card till the tenure is completed.

    Article about Akash is good one to start balancing individual income.


  7. pravin

    please let me know more about debt councellors and please provide me with the addresses in mumbai

  8. Dinesh

    A good article. Very help full for the current generation,including me off course.

  9. Bharat

    There is nobody as debt counsellor, what works for one Akash need not work for all of us, a part of it might work, but not all. So I would rather advice try your best to negotiate with the banks urself rather than these debt counsellors.

    1. admin


      There are debt counselors who act as a mediator between the banks and the customer, after evaluating the networth of the customer in a bid to help them manage their money and loans better. These counselors are expected to be unbiased and provide neutral solutions. Disha and Abhay are such centers which have actually been set up by banks to help individuals who are in debt and cannot repay. So feel free to approach any of them and see if they can help you

  10. Amrit Pal Singh

    First of all, why did Sheela left the job, when she knows that there is a home loan & a car loan & Akash is mis managing his funds…. Also who are these debt councellors????? For every family this is not the situation… for some families only the guy is working & not his wife…. so what about them????

  11. Vasanth

    Let me tell a worst case and a solution…
    Assume there is no ancestral property in Akash's or sheela's name and also sheela does not have any work experience and akash gets a low paid job (say 50% less). In such case, what would be the solution to handle debt?
    In my opinion, the only option to overcome the mental trauma is to get rid of the mortgaged asset ( in this case , the house). We just need to give the house to the bank authorities. Am I right ? any other solution ? correct me if I am wrong.

  12. GR

    I was working for an overseas concern till Jun 09. I am now in India and would like to purchase land & if possible commence house construction. Will I be in a position to secure a housing loan even though i am yet to strike it rich with a job opportunity. Wife is also not employed right now. I have no fixed or movable assets for mortgage. Please advise?

  13. Anil Chaturvedi

    Very good things for service class people.make the practise of savings.

    1. Anonymous

      I was working with telecom company and i left job 2 months before
      i just have got new job but i am suppose to pay a credit card payment of Rs24000 Bcaz i was not able to pay my last 2 emis how can u help me or suggest me to make that payment

  14. Ronee Sengupta

    Eye opening article. Can any body assist in letting me know the address of Debt Councellor in Kolkata. Affirmatively kindly let me know to discuss this kind of issue. Does bank agree to EMI on credit cards ?

  15. Dostum

    Hmmm. . .
    Lucky fellow Mr Akash was, for having Sheela as her wife ! But everyone is not lucky enough to have Sheela !!!Right ? So, we should very carefully watch our spendings and religiously try to start saving. Status symbols is nothing but a pain in the ….
    My advice would be : Get out of debt as soon as you can and free your money ( before starting to save); Make a monthly budget so that you know what you are spending on what; Pay your bills on time and avoid late payments ; Live below your means. Live frugally ( try to live with frugal people to acquire their habits); Avoid debts ( Creditor is worse than a slave-owner… for slave owner only commands your body but a creditor commands your soul ! ) Remember, nobody is happier than a debt free man !
    Then start saving and investing.

  16. kumar

    We are all aware of the facts in the article. But once we caught in such a bad condition, most of us cant overcome easily.

  17. kiran

    You are true. I have caught in this trap. Trying to overcome since last one year. Wherever i go for a PL, they check the eligibility and shows me the reason either last month your emi delayed or your credit card is overdue. What do i do?




  19. nazima

    we were running the bussiness for past 12 years, as our loans and interest repayment became more than the income we had to lose our business, and the banker are now ready to take posession of the mortaged property, i dont know what exactly has to be done, please help

  20. Jeanie

    Strongly advise young families to save 8 months of pay BEFORE thinking of buying consumer goods or even investing. This money should NOT be touched. And meanwhile, if you ahve children, do ensure you are putting money aside for their higher education.
    You will not know now, but suddenly you will find that you are unable to save, need money for kid's expenses or the surprise car breakdown or home repairs while the market that was supposed to make you richer collapses around you. At such times, you can breathe easier if you have the 8 months paycheck saved and have set aside monies for the kid's future.


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