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Ramalingam Kalirajan |4329 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 04, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jun 25, 2024Hindi

53 year old male, having about 25 lakhs liabilities in vaious fin. Institutions, now sruffering with repayments. House worth 75 lakhs, propert of 27 lakhs. 50 thousand fixed deposit. Nominal PF As income is going to stop, what should I do? Is there any option for consolidating all loans. Ready to pledge home and property..

Ans: It's challenging to face financial difficulties, especially when income sources are drying up. However, with a strategic approach, you can manage your liabilities and secure your financial future. Here's a detailed plan to help you navigate through this situation.

Current Financial Overview
You're a 53-year-old male with the following financial details:

Liabilities: Rs 25 lakhs
House: Worth Rs 75 lakhs
Property: Worth Rs 27 lakhs
Fixed Deposit: Rs 50,000
Provident Fund: Nominal amount
Given your liabilities and current assets, it's crucial to take immediate and calculated steps.

Assessing the Situation
First, let's analyze your financial standing:

Assets
House: Rs 75 lakhs
Property: Rs 27 lakhs
Fixed Deposit: Rs 50,000
Provident Fund: Nominal
Liabilities
Various Financial Institutions: Rs 25 lakhs
Options for Loan Consolidation
Loan Against Property (LAP)
Considering you're ready to pledge your home and property, a Loan Against Property (LAP) could be a viable option. Here's how it works:

Lower Interest Rates: LAPs typically offer lower interest rates compared to personal loans or credit card debts.

Longer Repayment Tenure: This results in lower monthly EMIs, making it easier to manage repayments.

High Loan Amount: Given the value of your property, you can consolidate all your debts into one loan.

To proceed, approach a bank or financial institution for a LAP. Ensure you compare interest rates and terms from different lenders to get the best deal.

Mortgage Refinance
Another option is to refinance your existing mortgage. If your current mortgage rate is high, refinancing to a lower rate can reduce your monthly payments. This could free up some cash flow to handle other debts.

Selling Non-Essential Assets
If consolidating loans through LAP or refinancing is not sufficient, consider selling non-essential assets. Here’s a breakdown:

Selling the Property
Evaluate the Need: If the property worth Rs 27 lakhs is non-essential, selling it can help reduce your liabilities significantly.

Utilize the Proceeds: Use the proceeds to pay off high-interest debts first.

Utilizing Fixed Deposits
Early Withdrawal: Although it might incur penalties, using the Rs 50,000 fixed deposit to pay off part of your debt can reduce financial stress.
Financial Discipline and Budgeting
Once you have consolidated your loans and sold non-essential assets, focus on financial discipline and budgeting:

Create a Budget
Track Expenses: Monitor your daily, monthly, and yearly expenses.

Cut Unnecessary Costs: Identify areas where you can cut back on spending.

Emergency Fund
Rebuild Gradually: Start rebuilding your emergency fund to cover at least 3-6 months of expenses.
Exploring Income Options
With your income stopping soon, exploring alternative income sources is crucial:

Part-Time Jobs or Freelancing
Utilize Skills: Look for part-time jobs or freelance opportunities that match your skills and experience.

Consulting: If you have expertise in a particular field, consider offering consulting services.

Renting Out Property
Generate Passive Income: If you have additional rooms or a part of your house that can be rented out, this could provide a steady income stream.
Seeking Professional Financial Advice
Engaging a Certified Financial Planner (CFP) can provide personalized advice and continuous monitoring of your financial situation:

Debt Management
Strategies: A CFP can help you devise strategies to manage and reduce your debt effectively.
Investment Guidance
Long-Term Planning: They can guide you in making sound investment decisions to secure your financial future.
Final Insights
Facing financial difficulties can be daunting, but with a strategic and disciplined approach, you can navigate through this challenging period. Here's a recap of the steps:

Consider Loan Against Property (LAP): Consolidate your loans at a lower interest rate and longer tenure.
Mortgage Refinance: Lower your monthly payments by refinancing your mortgage.
Sell Non-Essential Assets: Use the proceeds to pay off high-interest debts.
Create a Budget: Track expenses and cut unnecessary costs.
Explore Income Options: Look for part-time jobs, freelancing, or renting out property.
Seek Professional Advice: Engage a Certified Financial Planner for personalized guidance.
By taking these steps, you can manage your liabilities effectively and work towards a secure financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.