1. It is not possible to get out of a debt trap in a day, as it takes time and requires effort in careful planning, disciplined attitude, lifestyle changes and sacrifices.
2. Prioritise your debt repayments moving from the costliest loans to the cheapest, the normal ladder being:-
a) Credit card payments, being most expensive at 35%+ interest a year.
b) Personal loans, holidaying loans and festival loans, with 18%+ interest a year.
c) Consumer durables loans, with 15%+ interest a year.
d) Vehicle purchase loans, with 12%+ interest a year.
e) Education loans, with 12%+ interest a year, but with tax benefits on interest.
f) Home loans, with 11-13% interest a year, but with tax benefits on principal and interest.
3. If credit card dues have become huge, ask bank to convert it into a personal loan, for paying them through 6-24 EMIs, as its interest will be far lesser than when rolling over the balance.
4. If there is a cash crunch, taking a cheaper loan against your assets as collateral, to repay costlier debt, is better, provided you are disciplined, such as:-
a) Property, at 50%+ value, with 16%+ annual interest.
b) Gold, at 65%+ value, with 12%+ annual interest.
c) Shares, mutual funds and securities, up to 50% value, at 18%+ annual interest.
d) Insurance policies/Ulips, at 50%+ value, with 16%+ annual interest.
e) PPF, up to 30% corpus, at 2% rate above your PPF earning rate annually.
5. You can also liquidate:-
a) Low-yield investments or gold holdings, to pay-off high-cost debt whose recurring interest is higher than returns from them.
b) Non-performing mutual funds and loss-making shares to clear-off debt on priority.
6. If you want to effectively cut down on your debt, you also need to make some lifestyle changes by reducing discretionary expenses like family outings, phone and electricity usage, car expenses, etc., without compromising on mandatory expenses like children’s school fee, basic food and living expenses.
7. If mounting debts and unpaid EMIs are unmanageable, you can seek professional help of debt “de-addiction” centres, having debt counselors, who can guide you towards a solution, by examining all options to suggest most feasible ones.
8. Modern ones also offer a long-distance tech solution, by interacting through e-mail, phones and chats.
9. However, beware of conmen who will promise to get your dues settled for a small fee, but will adopt unethical practices spoiling your credit report in the process.
10. As a thumb rule, for comfortable debt, your EMIs of all loans put together should not exceed 30% of your net income, or 40% max. if your first home loan is the only loan.
2. Prioritise your debt repayments moving from the costliest loans to the cheapest, the normal ladder being:-
a) Credit card payments, being most expensive at 35%+ interest a year.
b) Personal loans, holidaying loans and festival loans, with 18%+ interest a year.
c) Consumer durables loans, with 15%+ interest a year.
d) Vehicle purchase loans, with 12%+ interest a year.
e) Education loans, with 12%+ interest a year, but with tax benefits on interest.
f) Home loans, with 11-13% interest a year, but with tax benefits on principal and interest.
3. If credit card dues have become huge, ask bank to convert it into a personal loan, for paying them through 6-24 EMIs, as its interest will be far lesser than when rolling over the balance.
4. If there is a cash crunch, taking a cheaper loan against your assets as collateral, to repay costlier debt, is better, provided you are disciplined, such as:-
a) Property, at 50%+ value, with 16%+ annual interest.
b) Gold, at 65%+ value, with 12%+ annual interest.
c) Shares, mutual funds and securities, up to 50% value, at 18%+ annual interest.
d) Insurance policies/Ulips, at 50%+ value, with 16%+ annual interest.
e) PPF, up to 30% corpus, at 2% rate above your PPF earning rate annually.
5. You can also liquidate:-
a) Low-yield investments or gold holdings, to pay-off high-cost debt whose recurring interest is higher than returns from them.
b) Non-performing mutual funds and loss-making shares to clear-off debt on priority.
6. If you want to effectively cut down on your debt, you also need to make some lifestyle changes by reducing discretionary expenses like family outings, phone and electricity usage, car expenses, etc., without compromising on mandatory expenses like children’s school fee, basic food and living expenses.
7. If mounting debts and unpaid EMIs are unmanageable, you can seek professional help of debt “de-addiction” centres, having debt counselors, who can guide you towards a solution, by examining all options to suggest most feasible ones.
8. Modern ones also offer a long-distance tech solution, by interacting through e-mail, phones and chats.
9. However, beware of conmen who will promise to get your dues settled for a small fee, but will adopt unethical practices spoiling your credit report in the process.
10. As a thumb rule, for comfortable debt, your EMIs of all loans put together should not exceed 30% of your net income, or 40% max. if your first home loan is the only loan.