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Ramalingam Kalirajan |10872 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 28, 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 - Oct 26, 2024Hindi

Dear All, My age is 27 and I have a Job, however I am in debt which are going out of control. I reached my friends relatives to have some help for short period of time so that I can settle my loans but no one is coming to support. Banks are not offering debt consolidation loan. I am in dire stress, depression. I can simply loan if just get a debt consolidation loan but nothing available. Please suggest any way out of it. It is runing my life.

Ans: Being in debt can be overwhelming. A focused approach is essential to manage it effectively. Your determination to resolve the issue is commendable and is a solid first step.

Analyse Current Debts and Prioritise Payments

The first step is listing all current debts, including amounts, interest rates, and deadlines. This will help you get a clear picture of which debts need immediate attention.

List Debt by Interest Rates: Rank each loan or credit card by interest rate. Tackling high-interest debts first often saves more in the long run.

Focus on High-Interest Loans First: Prioritise high-interest loans, as they increase the debt burden more rapidly. Paying these off first can significantly reduce monthly interest costs.

Create a Realistic Repayment Plan

Having a clear, simple repayment plan eases financial stress. This plan can be aligned with your monthly income to manage cash flow efficiently.

Minimum Payments on Lower-Interest Debts: Pay only the minimum amount on low-interest loans while focusing on high-interest ones. This allows you to pay off critical debts faster without defaulting.

Consider a Fixed Payment System: Establish a regular, fixed payment that goes toward debt repayment. Over time, this system builds a routine and reduces total outstanding amounts.

Explore Alternative Income Sources

Increasing income during this period will help pay off debt faster and relieve financial strain. Small side-income activities can make a big difference over time.

Part-Time Work Options: Consider freelance or part-time opportunities that align with your skills. The additional income can go directly toward debt repayment.

Skill-Based Gigs or Online Work: Simple tasks like tutoring, content creation, or technical support can provide extra income without needing significant time investment.

Seek Non-Bank Loan Alternatives

Banks may deny consolidation loans, but other avenues could still offer help. Being cautious while evaluating options is essential to avoid any risk of high interest or hidden charges.

Speak with Credit Unions or Cooperatives: Credit unions or cooperative societies sometimes offer low-interest loans to members. These loans are more flexible and come with manageable terms.

Employer Advances: Check if your employer offers salary advances. Some companies have policies for interest-free loans to help employees in financial distress.

Debt Management with Financial Counsellors

If you’re feeling stuck, certified financial planners can guide you through debt management strategies. Working with a professional offers personalised solutions and often relieves stress.

Certified Financial Planners: Professionals can review your debt, income, and expenses to create a practical and sustainable plan. They also provide accountability, which can be encouraging.

Credit Counsellors: Credit counselling agencies help negotiate lower payments with creditors. They also offer structured payment plans, making it easier to handle debts without any new loans.

Develop a Spending Control System

Spending control can prevent the debt from rising further. Limiting unnecessary expenses will maximise funds available for debt repayment.

Basic Budget: Track expenses and avoid discretionary spending for now. Aim to limit spending to essentials until debts are under control.

Use Cash for Daily Expenses: Avoid credit card use for daily expenses. Paying with cash can curb spending habits and reinforce control over money.

Explore Peer-to-Peer Lending Options Carefully

Peer-to-peer lending (P2P) can be an alternative for small loans. However, these platforms charge high-interest rates, so use this option only after carefully reviewing all terms.

Low Principal Loans: If necessary, choose a minimal loan that can assist in paying off a specific debt. Ensure repayment within a short period to avoid a long-term commitment.

Avoid Long-Term Debt Cycles: High-interest P2P loans can lead to a cycle of debt. Use only for short-term needs and focus on paying off as quickly as possible.

Build a Positive Mindset

Debt can take a mental toll. Practising stress relief activities can help manage anxiety, allowing you to focus on repayment goals with a clearer mind.

Physical Activity and Breathing Exercises: Regular exercise and deep breathing exercises help reduce stress, making it easier to stay focused.

Reward Small Achievements: Celebrate small milestones, such as paying off a credit card or reducing a loan amount. Recognising progress keeps motivation high.

Consider Family Support Without Monetary Aid

Though family members may not offer direct financial support, they may assist in other ways, like providing emotional support or covering minor expenses temporarily.

Discussing Financial Strategies: Talk to family members about your goals. Emotional support helps alleviate stress and allows a more focused approach.

Temporary Shelter or Shared Resources: If feasible, moving in with family for a while or sharing resources can help reduce rent and other monthly costs.

Final Insights

Facing debt is tough, but with a structured approach, it is manageable. Focus on each step, be patient, and progress will come. Debt freedom is achievable with discipline and careful planning.

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.