My wife and I are jointly servicing a home loan. The monthly outgo is Rs 30,000. Other expenses include an equated monthly instalment (EMI) of Rs 12,000 towards our car loan and the credit card bill of Rs 15,000-25,000. We could manage the debt earlier, as my wife was also working. But she quit working recently, after she met with an accident. Last month, I could not repay the EMI for my car loan and the credit card bill, due to high medical expense. I am worried this will build into an enormous debt burden. My monthly salary is Rs 60,000 and our monthly expenses are around Rs 20,000. I have Rs 4 lakh in the Public Provident Fund (PPF), which is in the eighth year, and Rs 2 lakh in National Savings Certificates (NSC). Please help me restructure my debts.
Your problem seems to be temporary, as I hope your wife will recover and take up a job again. Financially, the total of your EMIs for home loan, auto loan and monthly expenses (excluding credit card dues) comes to Rs 62,000, which is marginally above your monthly income. Credit card expenses are not fixed and are controllable.
In my view, you should restrict your monthly expenses, including credit card dues to Rs 18,000, which will bring your expense and income in line. Other alternatives are: i) Partial withdrawal or loan against PPF or NSC (from a bank with NSC as collateral) is available according to applicable rules, which may be availed to get immediate cash to tide over current problems, including medical expense; ii) Request your home loan banker to reduce the EMI amount by extending the tenor or increasing the EMI amount later (step-up EMIs) iii) If the above two options do not work out, sell your car and settle the loan with sales proceeds. If necessary, buy an old car or a smaller car for which you pay less EMI.
Your problems have got compounded due to the absence of a medical insurance. Get your entire family covered under medical insurance at the earliest.
Ten years ago, my friend took a home loan and named me the guarantor. Post this, I relocated and forgot about it. I returned to India a year back and applied for a home loan. I was quoted a high interest rate — due to poor credit history — as my friend was declared a defaulter on his loan and since I could not be contacted, it reflected on my creditworthiness, too. Is there any way this may be rectified? I am finding it difficult to borrow at decent rates from any bank, and even get a credit card?
Standing a guarantor to a loan is an act of responsibility. In the event of default by the borrower, the guarantor has to fulfil his obligations. The guarantor’s absence will result in his creditworthiness being adversely impacted.
You may encourage your friend to settle the loan or have it regularised. After a month, this will appear in his credit bureau report, reflecting your enhanced creditworthiness, too. You may then expect some reduction in interest rates for your new loan at the discretion of the banker.
Two years ago, I borrowed Rs 10 lakh to invest in the stock market. When the markets crashed in 2008, I incurred heavy losses and exited in September that year. I assured my lenders to repay them on a monthly basis. I have already exhausted my liquid savings of Rs 3 lakh and have been paying Rs 30,000 from my monthly income of Rs 45,000 for the last four months. To pay off the loan early, I took a Rs 1 lakh personal loan two months back, and have maxed out my credit card (current outstanding Rs 1 lakh). How can I clear the debt clutter?
In the absence of complete data, we will have to make some assumptions. You have cleared loans worth Rs 6 lakh from your savings, salary (Rs 30,000 monthly for four months) and personal loan. This leaves about Rs 4 lakh to be repaid.
Assuming your personal loan is for five years, its EMI should be at Rs 2,500. Request your banker to convert the credit card dues into a personal loan of the same amount with an EMI of roughly Rs 2,500. For the remaining Rs 4 lakh, you may either take another unsecured loan with an EMI of roughly Rs 10,000 or you may take a secured loan against gold, NSC etc, which will be cheaper and will have lower EMIs. Paying all the EMIs of about Rs 15,000 should not be difficult with your current monthly income. The important lesson for you is that you should not invest in risky assets like stocks with borrowed funds.
The writer is senior vice-president & group head (retail strategy & branding), Arcil. Send your queries to yourmoney@bsmail.in