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Ramalingam Kalirajan |10876 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 2025

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 - Jul 09, 2025Hindi

Hi I have 8 Lakhs Personal Loan and 18 Lakhs in Credit Card debts. I trusted a debt consolidation agency and they cheated me. Now I became defaulter on all my loans. I am not able understand how can I get out of this. I have mothnly salary of 1.2 Lakhs , Still not able to manage the finances.Now the banks are continuously calling and thretening my relatives and friends. I dont know how to manage this. Can you suggest any method I can follow to come out this situation.

Ans: I truly appreciate your courage to ask for help. Let’s go step-by-step and see how we can rebuild your financial life completely.

Understand the Real Problem

– Total debt is Rs.26 lakhs (Rs.8 lakh personal loan + Rs.18 lakh credit card debt)
– Your salary is Rs.1.2 lakh monthly
– You trusted a wrong debt consolidation agency
– Now, you have defaulted on loans
– Lenders are calling and even troubling your family

This is serious. But you can come out of it. It needs planning and full commitment.

Immediate Financial Reality Check

– You have no savings now
– Your credit score must be very low now
– Legal notices or collection threats may already be coming
– Credit card interest is usually over 36% annually
– Personal loan rates can be 12–18% per year
– This creates a debt trap quickly

Your monthly salary is Rs.1.2 lakh.
But loan repayments + living expenses are more than this.
That’s why things are spiralling out of control.
You need a 360-degree recovery strategy now.

Don’t Panic – Start Taking Back Control

– Stop taking any more loans from friends or apps
– Avoid thinking emotionally now
– Focus on logic and step-by-step action
– Speak to your family honestly and ask for moral support
– Don’t hide from the banks – face the issue
– Ignoring banks makes things worse
– You must take initiative before legal action starts

It’s important to take the first step today.

List and Prioritise All Your Debts

Make a simple list:

– Bank Name
– Type (credit card or personal loan)
– Amount outstanding
– EMI or minimum due
– Interest rate

This will give a full picture.
From this, we can decide what to handle first.
Generally, credit cards must be handled first due to high interest.

Talk to Banks – Not Collection Agents

– Avoid speaking with collection agents
– They have no power to restructure or settle
– Always ask to speak directly with the bank's recovery or settlement department
– Go to the bank branch directly if needed
– Explain your full situation truthfully
– Ask for a restructuring or settlement offer

They may give:

– Longer repayment period
– Lower EMI
– Part payment settlement
– Interest waiver if paid in lump sum

You must document every discussion in writing.
Never agree to anything on just phone calls.

Debt Restructuring Can Help

If you approach the banks professionally:

– You may get a structured EMI plan
– Or even a one-time settlement offer
– This stops further harassment calls
– This shows your intention to repay
– Banks are more supportive to honest borrowers

You may need to submit:

– Salary slips
– Bank statements
– Employment letter
– Budget plan

If you show your full income and expense chart, they will listen better.

Avoid Third Party Agents or Fake Companies

– Do not trust unknown debt settlement companies again
– Many such agencies are not registered or legal
– They charge upfront but never help
– Some even misuse your data
– Always approach banks directly

Never give legal power or authority to third-party consultants without checking.

Make a Realistic Monthly Budget

Your monthly income is Rs.1.2 lakh.
Let’s try to break this:

– Basic household expenses: Rs.35,000 (rent, food, utility)
– EMI and credit repayment: To be negotiated
– Transportation: Rs.5,000
– Communication and essentials: Rs.3,000
– Emergency fund: Rs.2,000 (even if small)

Try to cut down every possible luxury.
Cancel subscriptions, avoid dining out, no shopping unless urgent.
Live very simply for next 2 years.
Use every extra rupee to repay debt.

Start Emergency Fund – Even Small Helps

Even Rs.2,000–3,000 per month can help.
Keep this in a separate savings account.
Never touch this for EMI or loans.
This will help handle surprise expenses.
If you touch credit card again, your recovery will be delayed.

Debt Avalanche or Debt Snowball Strategy

Choose one method to repay debt:

– Debt Avalanche: Pay highest interest rate debt first
– Debt Snowball: Pay smallest balance first, then next one

Both methods work.
Pick the one that gives mental peace and shows early progress.
You must feel like you are winning each month.

Try for Support from Employer (if possible)

– Some companies offer employee salary advance
– Or low-interest personal loans
– If this is available, check with HR or accounts team
– Repayments can be deducted monthly from salary
– Better than credit card interest

But only borrow if terms are clear and documented.

Avoid Credit Card Usage for Now

– Stop using credit cards immediately
– Deactivate auto-debit features
– Cut physical cards if needed
– Don’t take new cards to repay old ones
– This is a loop that never ends

Use only debit cards or cash for next 2 years.

Understand Legal Rights – Don’t Get Scared by Threats

– Bank can file legal case, but it takes time
– They cannot harass your family or friends
– Police cannot arrest you for civil loan defaults
– Only court can order any legal action
– Record all calls and messages
– File police complaint if anyone uses abusive language

Stand firm but be polite.
Show willingness to repay, but not fear.

Don’t Fall for Loan Apps or Instant Credit Promises

Many fake loan apps exist.
They offer fast credit but collect huge interest.
They harass customers if you delay.
Never borrow from unknown apps or online platforms again.
Keep your data and contacts safe.

Impact on Credit Score – Accept and Plan Forward

Yes, your credit score is damaged.
But it is not permanent.
With regular EMI payments and settlements, it improves.
Focus on building repayment history from now.

Credit score recovery takes 18–24 months.
Be patient and keep consistency.

No Mutual Fund Investment Now – Focus on Debt Clearance

At this stage, don't invest in mutual funds.
Even though they are powerful tools, wait till debts are clear.
Once your EMIs are under control, start investing monthly.
But only via regular plans through a Certified Financial Planner.

Avoid direct mutual funds.
Direct funds offer no support or customisation.
If you don’t manage properly, you may face more losses.
Regular funds via CFP give you:

– Clear goals
– Tax planning
– Risk-adjusted returns
– Professional fund choices
– Portfolio reviews

This will build long-term wealth safely.

Final Insights

– You are going through a tough phase
– But it’s fully recoverable with clear action
– Be disciplined, honest and patient
– Talk to banks directly, not agents
– Make repayment plan and follow it strictly
– Cut lifestyle to basic needs for next 2 years
– Don’t borrow more to cover old debt
– Never trust any third-party debt agent again
– Focus on future, not fear

Your future can be secure and strong.
You have the income. You need the plan.

Stay focused. You will bounce back soon.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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.