Preventing a debt trap – any help?

POSTED BY Prasoon ON July 12, 2012 2:15 pm COMMENTS (33)

I have several credit cards and personal/housing loans. After expenses, paying MAD for cards and EMI for loans, there is hardly anything to save. Are there options for minimizing my monthly outgo?

I tried for a top-up with my existing PL/HL providers (CitiFin, BajajFin, LICHf), but no success. CC providers also declined my request to convert due amount into PL. I applied for debt consolidation with Fullerton/Standard Chartered, but it got rejected. Gold/Savings/Loan from family/friend is not under options for me.

My Cibil score is 811, but banks are not willing to help me due to current outgo. But the thing is that I don’t want any extra loan, I’ll just close the current loan and cards. Let’s say, I am paying 44K monthly for 8.5 L outstanding. If I get a PL for the same, I can close all PLs and Cards and total EMI would be something around 26K. Why Banks do not understand that if a person can pay 44K per month without any issue, he would be able to pay 26K easily.

I tried contacting DebtDoctor and others, but they are more into debt settlement. Which I obviously do not need/want. I have not missed a single payment till now, I have no intention to miss in future as well.

It’s ridiculous that banks are happy to help who can’t pay loans. Also, banks are happy to help who don’t need loans. But when I am interested in paying full amount and need a bit of assistance – no help is there.

If anybody knows any option/ organization (which is not mentioned in this message), which can help me – Please let me know.

33 replies on this article “Preventing a debt trap – any help?”

  1. Jason Braganza says:

    Prasoon, it’s amazing the way you’re coping.

    One suggestion, while you make minimum payments on all your cards,

    Take the one with the least amount outstanding & make more than the minimum on it. As much as you can. That should help you close quicker & prevent interest rates from snowballing.

    Once one card is over, take the money you were paying on the old closed one & start with the card that is now lowest.

    If you run into your windfall, in the meantime, good for you πŸ™‚

    1. Prasoon says:

      Thanks Jason for your kind words. I’ll keep your suggestion in my mind.
      Regards,
      Prasoon

  2. Prasoon says:

    Ashal and Manish – I thank you people almost daily since last one and half year (since I’ve started reading JI) for some new knowledge. I’ve got few good suggestions and inspirations – thanks Raghavendra and Yogi for that.

    Fact is that I already had started taking action one year back by selling LIC END/ULIP plans (thanks to JI) and closing one credit card using that amount. I am not using other cards since then. But as many people said – it’s a long process. I’ve got few other suggestions here like EPF (which I can use after this year), Gold (I might be able to use as a small part) and Friend/Family (By giving them some return) – I’ll explore each option. I understand that loan is not a good idea, but Bad (18% int) is better than Worse (36% int) – and so, I’ll still try for that. In that case I’ll be able to make some extra payments to credit cards each month.

    It’s very easy to say that – ‘you are mismanaged/ messy/ un-disciplined/ irresponsible/ extravagent/ stupid’. But I don’t need to come to a forum to know these things, as I know it already. And frankly, that ‘you are’ can be changed to ‘you were’ in the previous sentence. I came here for an answer/solution/suggestion, and as usual, people on JI tried to help me with their best. Thanks to all!!

    1. Yes Prasoon

      Accept those points .. will try to make sure it happens from next time πŸ™‚ .

      1. Prasoon says:

        I didn’t get that ‘next time’ thing. I haven’t made any suggestion in my reply.

        I am sorry, if my writing implied it other way. All I wanted to say that – if I discuss these things with people they tag me with those adjectives. While in actual, I needed a solution as well – even if that comes after the ‘adjective’. But at JI, scene is exactly as I expected. And that expectation was based on 1.5 yr of experience πŸ™‚

      2. Prasoon says:

        Also, I think I’ll forward the link of this page to show them how the help should be..

        Thanks again Manish – I’ll update here as and when I succeed (even partially).

        1. Muthu Krishnan V says:

          hi prasoon,

          couple of things i thought of

          1. Do you have a lot of points on your credit cards? If so, call the credit card issuer and see if you can adjust them against your cards outstanding. even if you are able to get 3K Rs, it will reduce interest by 100rs. every month.
          2. If you have ppf or lic policies, take the max loan possible against them and repay the costly loans. interest on these is very less.
          3. you can partially withdraw ppf amount if any.
          4. have a look at your monthly expense and bring it down to the bare minimum.
          e.g: 1. Do you have a landline with internet connection. see if you can go for the lowest available plan or terminate it if you are not using heavily.
          2. are you using 2g/3g/4g mobile phone connection. do you need it?
          3. do you frequently eat out or go for movies? can you reduce this.

          1. Prasoon says:

            Muthu,

            Many thanks for suggesting Point 1 and 4. Point 2 and 3 are not applicable to me.

            Prasoon

    2. Dear Prasoon, glad to know that you have already started the walk. We do know it’s a long walk & most of the time, it’s a lonely walk. Regarding use of such adjectives, well it’s possible that people are not aware of all the situations you have passed from.

      I sincerely apologize on behalf of all others if your feelings are hurt. Coming back to your own path, please explore that Co-operative bank & friend loan option. Also a bit of Gold sell.

      Thanks

      Ashal

      1. Prasoon says:

        Ashal,
        I am sorry that I couldn’t make my point clear in that comment. I mentioned to Manish earlier and mentioning again what I meant – In real life I just hear those adjectives if I share. I don’t have any problem with that if a solution comes after that. Which doesn’t happen generally. But at JI everyone gets a proper suggestion. And it’s not a new thing for me, as I have been a regular visitor of JI since last 1.5 years πŸ™‚ .
        It’s really tough to express in words, but believe me, I respect you people and your advice a lot.
        Regards,
        Prasoon

  3. Dear Prasoon, all of us have already advised a lot. πŸ™‚ Now it’s your time my dear friend to do some leg work & explore all possible options & do some action. Our wishes are always with you.

    Thanks

    Ashal

  4. Yogi says:

    Hi Prasoon,

    First of all, you are not the only one who is in this trap. I myself had been to this path for several years. I had 10+ loan accounts, several financial responsibilities and no gold, no relatives πŸ™‚ . It was possible to come out only with PRESERVANCE.

    Only things I can tell you from my experience is:

    1. In such times, you should ‘fire from all cylinders’. i.e. check out if you have any junk policies (ULIP which you cant handle anymore, suffering losses etc and no chance to improve) or any other policies which are not worth maintaining. I would use them in my crisis.
    2. Never ever take another loan from bank to clean-up old one. In reality, this is a trap. Trap for an attitude. Its a human tendency to adapt short-cut, once you start doing this, there is no guarantee that this wont happen again and you will keep on paying EMIs forever.
    3. Cutting down expenses and running for fast-track closure of High interest loan is highly advised
    4. Use PF and/or LIC endowment policy (if you have any) to wind-up high interest loans
    5. Its a long process, no doubt. Its just that you need to plan for every paisa you earn. Better have some excel sheet tracking your all loans, credit card dues in one sheet, have this for per month. This would give you insights about cash liquidity and total EMIs pending. Depending on this, you can plan out which loan to target first for closure. Money saved is money earned.

    My advice might sound highly irrelevant to someone but I had come out of this trap in 6 long years. Only thing which helped me is planning for every paisa of salary, cutting down unnecessary expenses and never running for other loans.

    All the best,

    Yogi

    1. Ramesh says:

      Well done buddy.

      Ramesh

    2. Muthu Krishnan V says:

      hi yogi,
      if prasoon is able to get a lower interest loan from one place and he uses *ALL* of the money to clear his other loans, it would be the best option. He can focus his energies to clear off the new big loan.
      Thanks,
      Muthu.

      1. Yogi says:

        Hi Muthu,

        That is also one option which I didnt evaluate. As he mentioned – 18% is better than 36%. Fact of the matter is, over period of time, one might find more options which can lend with lower interests. So this shall not be the practice over time. Anyways – this is valid option.

  5. Prasoon says:

    Manish,

    I had not thought with this ‘1% more return’ angle till now. I’ll definitely try with some of my friends. Thanks for this suggestion, really!

    Prasoon

    1. The Sad fact is that there are many people in India who pay more than FD returns in loans and many people dont get more than FD returns out of their investments , and just because their is no proper platform for them to meet, banks utilize both opportunities . I am sure there must be some one who wants 12% out of his FD , and you will pay 15% anyways on a personal loan , so why not this guy !

      Manish

  6. kramasundar says:

    Guys, I really appreciate your time spent for helping other. Hats off to you.

  7. Sundaram A says:

    Dear Prasoon,
    Are u from Mumbai?

    1. Prasoon says:

      No! I stay in hyderabad.

  8. Prasoon

    Prevention is better than cure, you have now understood this fact very well . Sadly its not an easy thing to get out of this, given your credit behaviour , no bank is now not ready to lend you anything , your current situation and capacity does not matter here, what matter is how you have behaved till date, that can replicate again , what is the guarantee that it will not happen again ? Think from bank point of view !

    Dont you have any savings ? Are you paying any Endowment insurance premium as of now ? Better divert that money in this for now and then take a pure term later .

    One thing you should be clear that no organisation or company can help you here, its only you and only you ! .. Slowly target this and slowly get out of the mess , Pay off the loans more than MAD , only then you can get out of it , else it will continue forever .

    Manish

    1. Prasoon says:

      Thanks Manish for replying.

      I’ll repeat here what I said in my question –

      ‘It’s ridiculous that banks are happy to help who can’t pay loans. Also, banks are happy to help who don’t need loans. But when I am interested in paying full amount and need a bit of assistance – no help is there.’

      Let me explain a bit further –

      Recently I applied for PL (for Debt Consolidation) in StandardCharted. Agent told me to apply for Credit Card as well. I knew that CC application will be rejected, still I applied. PL application got rejected, credit manager said – ‘It’s due to credit card outstanding. Clear your dues today, and you’ll get a PL tomorrow guaranteed.’ To my surprise, after few days I received a SC credit card with 50K balance.

      Bank who was expecting me to be disciplined, declines a disciplined way of debt (PL), but approves an indisciplined way (CC). What does that mean?

      1. Dear Prasoon, had you tried for this PL thing in any co-operative bank in your area? Please try your luck there also.

        From that S&C PL=CC thing no you can understand better that Financial Institutions are not here to educate all of us but to make money at our expense. Please try to arrange a loan from your PF, as you have completed 4Y, it’s possible to get a refundable loan.

        Thanks

        Ashal

        1. Prasoon says:

          For EPF, I’ll need to have 5 years of fund membership – so that option is closed.
          Thanks for suggesting about co-operative banks, I’ll try my luck there. However, not sure if they consider Pvt. Ltd. Comp. employees.

          Regards,
          Prasoon

          1. Co-operative banks will also be of less help , they are also under CIBIL now and they will check your reports first , which will make sure its declined !

            Prasoon , I know you said that loan from friends and family is not an option , but is it really so , I want to understand what if you give 1% more return then FD in return , wont anyone be able to help you ? Is there no one who can not take lend you some money genuienly for few months

            Manish

  9. Ramesh says:

    Do it the old style.

    1. Spend less than you make. Live really frugally now onwards.

    2. Try to pay off the highest interest rate debt first.

    3. Wait for your extra money, and use that to payoff the debts.

    4. Since you are able to manage the EMIs, you do not need to get other loans. No friend/relative to help you out – does this signify personal problem or they do not want to loan to you because of your irresponsible behaviour. Think about it, because only you will be able to assess that.

    5. Yes, this road is difficult and you may feel despair and think you will never be able to come out of it. But others have done that. It takes time and work and all that, but you can do it.

    6. Do teach your kids not to make similar mistakes.

    [Kind of philosophical answer, not a quick fix].

    Ramesh

    1. Prasoon says:

      Thanks Ramesh!

      Agree with point no 1,2,3 and 6. Point 5 will inspire me in clearing the debt. Point 4 – It’s just because I do not have rich friends/family πŸ™‚

    2. Raghavendra Nainala says:

      Prasoon,

      I have been in a similar position before, so I can understand what you must be going through. As Ashal had mentioned, please try to see, if you can use the PF route to get extra funds.

      Pay the highest Interest Rate Loan first is not always the best idea. Depending upon the scenario, When you feel your debts are way over your head, its better to bring them under control first then try clearing one after the other. Predominantly the higher interest Loans typically have a lower emi payment(comparatively) by prolonging it over a long period of time, In my case it was like that. so try to bring control over your Payments, Expenses.

      See other options as well, Closing the Loan with Least Principal Outstanding first or highest emi payment(even though lower interest rate) Loans also. helps you to reduce the monthly EMI burden quickly and get control over your payments.
      Also try to build a emergency corpus of 3-6 months salary as corpus so that you dont find yourself in a soup, if a any emergency arises now.

      In my case when we started out, our family’s monthly outgo was more than we earned. we were able to get a Loan against property which helped close many of the loans(predominantly high emi paying loans) and reduced the monthly EMI burden and enabled us with some spare cash which I used to create the corpus first. then I started going about the closing the loans with least Principal outstanding, as I wanted to get more spare cash in my hand.

      This helped me build my corpus faster and also reduced the monthly outgo. It can be a long & hard process to get yourself out of it. It took me 4 years to close all my loans(22 lakhs) and become debt free. I was able to do it, you can too.

      You have taken the first step, think hard you will get a solution somewhere near to you. A lot will depend on your discipline and motivation to keep going. I wish you all the best.

      Regards
      Raghavendra

      1. Prasoon says:

        Thanks Raghavendra for detailed reply and suggestions. It was encouraging and inspiring.

        For now, my options seem to be time and bonus only.

        Prasoon

  10. Prasoon says:

    Thanks Ashal!

    Can I take a loan against a four year old EPF?

    I think the only option right now is making minimum payments on time, making extra payment whenever I can, waiting for salary increment so that I can get a PL, waiting (2 yrs) for existing PLs to get over.

  11. Dear Prasoon, are you still using those Credit cards or not?

    From your query it’s not clear, how did you get into this trap? What was the reason. if you or your family do have any gold, sell it immediately & close some of the CC dues.

    Thanks

    Ashal

    1. Prasoon says:

      I am just making MAD every month for those cards. I am not using those cards for buying anything.
      Gold, as I mentioned, is not an option. For now, there is only one option – which is bonus payment from my company, bi-annually. But still, it will take two years or more to clear all.

      How did I get into trap – well that’s a story. It was a combination of necessity (medical emergency in the family), stupidity (making payments for PL/HL dues by taking a loan on card), extravagance (travelling and buying unnecessary things after marriage) and unawareness (paid minimum amount when I could have paid in full).

      1. Dear Prasoon, please check, can you arrange a loan from your PF or if you do have some traditional life insurance policies, loan against them may help you. Please check can you arrange some financial help from your wife’s family?

        Thanks

        Ashal

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