<B>Debt Counselling:</B> Sanjay Agarwal

I have locked in all liquid money in investments and now I need some for Christmas spending. I have a Rs 2 lakh personal loan for six months. Should I opt for loan on credit card or get my credit limit of Rs 50,000 extended?
Revolving loan on credit cards is the most expensive available from the banking system, with interest rates exceeding 42 per cent annually. Therefore, instead of extending your limit and availing revolving credit, I suggest you take a loan on your card, where the interest rate is likely to be in the range of 15-20 per cent.

I ,33, earn Rs 35,000 monthly. I live with my parents and don't have any other dependants. My debts have piled on majorly in the past few months and I need help to restructure these. My liabilities include EMIs towards personal loan = Rs 5,250 and car loan = Rs 4,250. I borrowed about Rs 3 lakh four months before for my sister’s wedding from friends and family. I am not paying any interest on this amount and have been paying off approximately Rs 10,000 each month (amount outstanding = Rs 2.6 lakh). The rest of the earnings are spent on monthly expenses (utility bills, parent’s medicines and so on). As a result, I haven't been able to service my credit card bills since the wedding (I maxed out the limit of Rs 60,000 and have been paying only the minimum charges since then). Fortunately, I don't have to pay any rent, as we have our own apartment. How can I get out of the debt trap?

You have a fixed monthly obligation of Rs 9,500 on EMIs and relatives’ loan of Rs 10,000. This leaves about Rs 15,500 for personal expenses and credit card dues. You are paying above Rs 3,000 for revolving credit on the card, considering five per cent of Rs 60,000. It would mostly be higher accounting for interest and other charges. Credit card debt is the most expensive available, with annual interest charged in excess of 40 per cent. You should immediately take a personal loan of about Rs 60,000 for a period of three years to clear all the card dues at one go. Interest on this will be 15-18 per cent per annum and EMI would be Rs 2,200-2400, lesser than what you must be currently paying for card dues. This will not only clear all the card dues but help save some more money, that can be used to repay the relatives’ loans faster.

The writer is senior vice-president and group head, retail strategy and branding, Arcil. Send your queries to yourmoney@bsmail.in

Debt Counselling: Sanjay Agarwal