I am a 38-year-old entrepreneur, operating a textile manufacturing unit. Two years ago, I took a loan from a bank to fund my facility’s expansion. Last year, I began facing problems in my business. I couldn’t repay my loan instalments and had to mortgage my wife’s jewellery. I have also taken a personal loan and fall back on my credit cards to fund my daily expenses. My only liquid surplus is my current account balance of Rs 5 lakh, which I need to maintain from a business perspective. How do I get out of this debt trap?
Your main problem is your depleted income from business. The solution does not lie in taking a personal loan. All these methods are temporary, costly and will eventually lead to a debt trap. I suggest you must go to the root of the problem and put your business back on sound footing. Banks help industries affected by the downturn in the export market, although I am not sure if the scheme is still operational. Many textile units have diverted their business to the domestic market to remain viable. In short, you have to revive and place your business back on rails in consultation with your bank.
Coming to your specific question, any unsecured loan is the most expensive form of loan available. In particular, credit card loans are very expensive with interest rates exceeding 40 per cent annually. Credit cards should be used more as a convenience to make payments and not for taking loans. So far as managing loans is concerned, you should immediately request your bank to convert existing credit card dues into monthly instalments for the longest tenure, which will reduce the annual interest to around 15 per cent. If you need additional funds in the short-term, you can take secured loans such as additional loan against gold, shares or property, in the same order of priority.
I am going to London later this month for further studies. I plan to open a bank account there and also apply for a credit card. At present, I am using a credit card that maxed out last month. My father has been unable to pay off the entire bill amount and may not be able to do so for a few months. Will this affect my credit history and thus, my chances of getting a credit card in London?
Prima facie, credit institutions in a foreign country cannot access the credit bureau database in the home country, which means banks in the UK cannot access bureau reports in India on their own. However, there are instances in India where banks have asked the borrower to provide a copy of their credit information report from the foreign country. In your case, the card issuing bank may ask for your credit information report from a credit bureau in India. I suggest that you ask your bank to convert your entire credit card dues to an equated monthly instalment-based payment according to your father’s ability to pay. Pay monthly instalments to ensure that your credit history is not affected adversely.
The writer is senior vice-president and group head, retail strategy and branding at Arcil. The counselor’s views expressed here are his own. Send your queries to yourmoney@bsmail.in