Drowning in debt? Here’s your way out


After working for a few years, Sachin hit a jackpot when he got promoted and started earning a handsome salary with some added perks as entitled from the government. His wife Ragini, was happy that Sachin was now earning more so she could take a break from her job to take care of their one-year-old. But for Sachin, this salary rise meant satisfying his material needs. So, Sachin took a car loan to buy a Mercedes Benz as owning one was his dream. After another two months, Sachin took a home loan to buy a six bedroom flat.

Even though Ragini was happy with all the new additions to the family, she was not too happy with the way Sachin was spending money, especially now that he was the sole earner of the family. As if that was not all, Sachin invested whatever was left after paying the EMIs in the stock market; this further worried Ragini.

Year 2008 saw the stock market tumble and Sachin suffered great losses, yet he did not learn his lesson. Instead of waiting for the situation to become clear, he bought more shares as they were being sold at a much lesser rate. The tragedy struck when Sachin was laid off from his company as recession hit most of the Multi National Corporations across the world. So, with no immediate savings and no source of income, Sachin and Ragini found themselves burdened with loans which they could not pay off keeping the circumstances in mind.

If you relate to the situation above, read further to save yourself from the money crunch and emerge victorious.

Small yet immediate steps to take:

  • Request the lender to lower the interest rate.
  • You can also convert you credit card debt into a personal loan as the interest rates are much lower than that in a credit card.
  • Calculate the actual value of your investments and see if you can use them in any way to prepay some of your loans.

Meeting the trouble head on

Sachin’s current financial situation was a result of his own miscalculations which were fed by greed and his aspirations to become materially rich. While he had the money and the means, Sachin did not use them wisely as a result of which, he and his family both were suffering.

Sachin, however, did take charge of his situation and approached a debt counseling firm who helped him by assessing the situation and equipped him with small measures to save him from the building debt. The firm not only educated him about managing his finances better, but also acted as a mediator between him and his bank.

It was Ragini who came to rescue of her husband’s financial debacle. An ancestral home that was bequeathed to her, along with fixed deposits and gold that she has bought over the years were used as collateral for a loan. Using this money, Sachin and Ragini made pre-part payments towards their car and home loans. They further narrated their financial situation to the bank, promising to resume paying the EMIs once Sachin finds a job for which, he signed a written undertaking.

Make a note here that banks usually oblige your request if such a situation arises. Also, if you ever find yourself unable to pay the EMI for a prolonged period of time due to financial crunch, it is always a good time to approach your bank and explain your situation as the lender bank, at times, may find a solution.

Ragini, whose industry was not badly hit by the recession, was lucky enough to get her job back and was able to sustain the household expenses. Sachin, in the meantime, took a break and got to spend some time with his child and gain some perspective on his financial mistakes.

As fate would have it, six months later, he found a good job which paid him enough to meet his needs and pay the EMIs. As promised, Sachin resumed paying his EMIs and since his bank was already reducing the interest rates, he managed to convince them to reduce the interest rate he was paying too.

After resuming his job, Sachin has started living a more financially responsible life.

  1. He started putting a part of his salary into an emergency fund he created in case of a rainy day. He planned to put in three months salary into it after two months each.
  2. He ensured that his current EMI did not go beyond 40% of his total income.
  3. He further managed to pre-pay some of his loan amount using the returns from his stocks as the market situation improved.
  4. Since there were two incomes coming into the family, both Ragini and Sachin tried to keep their joint expenses at about 60% of their total joint income.
  5. Sachin also sought to invest in various assets instead of investing all in sticks at once. He understood the importance of a diversified portfolio and invested more carefully.

Here are some ways to cope with a similar situation:

  1. Negotiate with the bank to reduce the interest rate you pay.
  2. If you have a credit card debt, convert it into a personal loan as the interest rates will be much lower as compared to that of the credit card.
  3. Calculate your net worth and see if any of your investments can be used and if you could pre-pay a part of your loan using this money.
  4. Always make a contingency plan for your future needs.
  5. Talk to the bank officer with your debt counselors and try to make them understand your current situation. Check if the bank will be able to give you some relief by allowing you to resume the payment of EMIs after a while.
  6. If your spouse is also earning, check if he/she can support you and the house hold expenses while you try to get a job.
  7. One needs to judiciously manage their expenses in such a situation. Try your best to avoid any unnecessary expenditure.



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