hello sir, i have taken gold loan at 8.8% pa and using the gold amount for lending at 18% pa. i want an advice on if i should purchase new gold at the price of Rs 66000 per 10gms n again take a loan at 8.8%, where 24 carat gold value calculated is 85% by bank that is Rs56100 or i should lend the same amount of Rs 66000 at 18%

Ans: While using gold as collateral to obtain an overdraft (OD) facility may seem like a viable option to manage your interest costs, there are several factors to consider before proceeding with this strategy:

Interest Rate Differential: The interest rate on your OD facility against gold needs to be significantly lower than the interest rate on your business loan for this strategy to be beneficial. Ensure that the cost of borrowing against gold is lower than the 10.5% interest rate on your business loan.

Risk of Fluctuating Gold Prices: Gold prices are subject to market volatility and can fluctuate over time. If the value of gold decreases, you may face challenges in maintaining the required collateral value for your OD facility. This could potentially lead to margin calls or the need to pledge additional assets.

Liquidity Constraints: While gold can be a valuable asset, it may not provide the same level of liquidity as cash or cash equivalents. If you require immediate access to funds, selling gold or obtaining an OD against it may not be as straightforward as withdrawing from a bank account.

Loan Repayment Considerations: Using gold as collateral for an OD does not eliminate your obligation to repay the original business loan. Ensure that you have a clear repayment plan in place to address both the business loan and any outstanding amounts on the OD facility.

Regulatory and Lender Requirements: Check with your lender regarding their policies on using gold as collateral and obtaining an OD facility. There may be specific eligibility criteria, loan-to-value ratios, and documentation requirements that you need to fulfill.

Before proceeding with this strategy, it's advisable to consult with a financial advisor or banking professional who can assess your specific situation and provide guidance tailored to your needs and objectives. Additionally, consider exploring alternative options for managing your interest costs and addressing any delays in your investment plans.

Ans: Current Financial Position Overview

You are 33 years old. This gives you time for strong wealth creation.

 

Your take-home income is Rs. 90,000 per month. That is a decent and stable income.

 

You already built an emergency fund of Rs. 5 lakh. That’s a very wise step.

 

You hold Rs. 5 lakh in savings and Rs. 6 lakh in gold.

 

Your current SIP is Rs. 2,000 per month. That is a small start. Can be improved.

 

You have an outstanding home loan of Rs. 22 lakh.

 

You are considering using both gold and savings for part loan prepayment.

 

Understanding Your Home Loan Burden

Outstanding home loan is Rs. 22 lakh. That is a moderate liability at your age.

 

Loan EMIs take a regular share of monthly income.

 

Reducing this EMI outflow can increase future savings potential.

 

Prepaying a home loan reduces your total interest payout.

 

However, every rupee paid off now also reduces liquidity and long-term investment power.

 

Should You Use Rs. 5 Lakh Savings for Prepayment?

This amount is outside your emergency fund. So using it is okay.

 

Prepaying with these savings will lower your debt faster.

 

But ensure at least 6 months' expenses are untouched as emergency reserve.

 

If Rs. 5 lakh is not touching that reserve, you can safely use it.

 

You will save more interest than a bank FD will earn.

 

So, this prepayment move is logical and timely.

 

Assessing the Role of Gold in Your Financial Plan

You own gold worth Rs. 6 lakh. Gold is not an income-generating asset.

 

It just sits idle. It has long-term volatility and low cash flow potential.

 

Emotionally, gold feels like security. But financially, it blocks growth.

 

If not meant for marriage or specific purpose, it can be monetised.

 

Selling gold now can help reduce interest-bearing debt.

 

This step will improve your monthly cash flow later.

 

Gold price is reasonably high now. So you may exit at a good value.

 

You can always rebuild small gold exposure later through SIP in gold funds.

 

Physical gold involves storage, insurance, and no return unless sold.

 

Benefits of Home Loan Prepayment with Gold and Savings

Less loan balance means fewer EMI months.

 

Faster freedom from debt builds confidence and improves future planning.

 

Your net worth improves as liabilities reduce.

 

You may also qualify for better interest rates post part-payment.

 

Once loan is cleared faster, that EMI money can move to investments.

 

But do check prepayment charges with your bank.

 

What to Do with EMI Savings After Prepayment?

Redirect EMI savings into SIPs in mutual funds.

 

This builds wealth over 7–10 years for long-term goals.

 

Begin with Rs. 5,000 and gradually increase SIP to Rs. 10,000 or more.

 

Follow a disciplined investment plan aligned with your financial goals.

 

Choose regular plans through MFDs with Certified Financial Planner guidance.

 

Avoid Direct Plans – Here’s Why

Direct plans skip advisor fees. But they skip advice too.

 

Choosing funds without expert help is risky and confusing.

 

You may pick based on short-term returns. That leads to wrong timing.

 

Regular plan through MFD linked to a Certified Financial Planner gives full support.

 

Portfolio review, goal tracking, asset mix – all managed in one place.

 

In long run, this adds more value than you save on costs.

 

Build SIP Discipline After Prepayment

Your SIP now is Rs. 2,000. It is too low for wealth creation.

 

Use Rs. 10,000–15,000 of EMI money post prepayment for monthly SIPs.

 

Invest in 3 or 4 well-diversified mutual fund schemes.

 

Focus more on actively managed funds than passive or index funds.

 

Index funds lack downside protection during market falls.

 

Active funds with good track record can manage volatility better.

 

Emergency Fund Review

Rs. 5 lakh emergency fund is adequate now.

 

You must ensure it is parked in liquid or ultra-short mutual funds.

 

Avoid FDs for this. Returns are low and access is not instant.

 

Never use emergency fund for investments or loan prepayment.

 

Keep it untouched and always ready.

 

Insurance – The Silent Guardian

Do you have term insurance? It’s a must at your age.

 

Ideally 15 to 20 times of annual income is needed.

 

Also ensure a health cover of minimum Rs. 5 lakh.

 

Without protection, wealth building is like driving without brakes.

 

Loan Prepayment or Investment – A Quick Comparison

Prepaying a home loan gives fixed benefit by reducing interest outgo.

 

Investing in mutual funds may offer higher returns. But with risk.

 

At your current age, blending both is a balanced strategy.

 

Prepay now using gold and savings. Then, increase monthly SIPs.

 

This way, both wealth and peace of mind grow together.

 

Avoid These Mistakes

Don’t break emergency fund for prepayment.

 

Don’t sell gold if it is earmarked for family needs.

 

Don’t stop SIPs completely to prepay loan.

 

Don’t delay term and health insurance decisions.

 

Don’t invest in real estate now to build wealth.

 

Don’t fall for stock tips or short-term returns.

 

Create a Post-Loan Financial Vision

Once the loan is reduced or closed, your EMI amount becomes investable.

 

Use that extra monthly cash to grow wealth slowly.

 

Stick to long-term goals and don’t change funds often.

 

Keep a goal-based investment mindset.

 

Review progress once a year with a Certified Financial Planner.

 

Finally

You are doing well. At 33, you have made smart financial moves.

 

Emergency fund, savings, home loan discipline – you are on the right path.

 

Selling gold and using savings for part-prepayment makes good sense now.

 

But remember, don’t touch the emergency buffer.

 

After prepayment, increase SIPs step-by-step.

 

Use regular mutual funds through MFDs guided by a Certified Financial Planner.

 

Your wealth will grow with less pressure, more control, and better clarity.

 

Focus on both financial protection and freedom.

 

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

Ans: Your honesty and clarity deserve appreciation.
You have explained everything openly.
That itself shows responsibility and courage.
Your concern for family security is clear.
This situation is stressful but not hopeless.

» Current Financial Snapshot
– You are 32 years old.
– Married with a young daughter.
– Family income is Rs 86,000 monthly.
– Total EMIs exceed total income.
– Monthly deficit exists every month.

» Debt Position Reality
– Total loans exceed Rs 52 lakhs.
– Multiple banks and lenders involved.
– Average interest is very high.
– Private lender interest is dangerous.
– Gold loan exposure is large.

» Cash Flow Mismatch
– Monthly EMIs are around Rs 1 lakh.
– Monthly income is only Rs 86,000.
– Father supports household expenses.
– Still a monthly shortage exists.
– This gap is unsustainable long term.

» Interest Drain Assessment
– Around Rs 50,000 goes as interest monthly.
– Interest gives zero future benefit.
– Half your income is lost to interest.
– This is the core problem.
– Capital is not reducing meaningfully.

» Gold Purchase Thought Analysis
– Fear of rising gold prices is natural.
– Emotional thinking is influencing decisions.
– Buying gold using loans is risky.
– Pledging gold increases debt cycle.
– This strategy already created stress earlier.

» Gold Loan Trap Explanation
– Buying gold using borrowed money is leverage.
– Leverage increases risk in personal finance.
– Gold does not generate income.
– Loan interest keeps accumulating.
– Emotional comfort hides financial damage.

» Clear Answer on Gold Buying
– Do not buy more gold now.
– Do not take fresh loans for gold.
– This will worsen debt burden.
– Price rise fear should be ignored.
– Survival is more important than assets.

» Priority Reset Required
– Debt freedom comes before investments.
– Cash flow stability comes before wealth.
– Insurance comes before gold.
– Family safety comes before emotions.
– Discipline is needed now.

» Private Lender Loan Danger
– 18 percent interest is destructive.
– This loan must be closed first.
– It gives no flexibility.
– It increases stress constantly.
– It affects mental health also.

» Strategy for Private Loan
– Use any possible support to close it.
– Ask family help if possible.
– Sell unused items if required.
– Temporary embarrassment is better than long stress.
– Closing this gives immediate relief.

» Gold Loan Strategy
– Do not increase gold loan amount.
– Avoid rollover behaviour.
– Use bonuses or gifts to reduce principal.
– Do not top up gold loans.
– Reduce dependency gradually.

» Bank Loan Lock Period Reality
– You cannot restructure for one year.
– This period must be survived carefully.
– No new liabilities should be added.
– Expenses must stay minimal.
– Emotional spending must stop.

» Expense Control Measures
– Track every rupee monthly.
– Avoid eating outside.
– Avoid subscriptions and upgrades.
– Delay lifestyle expenses fully.
– Treat this as recovery phase.

» Role of Father’s Support
– Parental support is a blessing.
– Use this support wisely.
– Do not misuse the relief.
– Focus on debt reduction.
– This support is temporary.

» SIP Investment Assessment
– SIP of Rs 2,000 is symbolic.
– It gives psychological comfort only.
– It does not change financial position.
– Debt interest is much higher.
– Pause SIP temporarily if needed.

» Investment Versus Debt Reality
– Paying debt gives guaranteed returns.
– Interest saved equals investment gain.
– No mutual fund can beat 18 percent interest.
– Debt repayment is priority investment now.
– Wealth creation starts after stability.

» Insurance Hesitation Reality
– Term insurance is not optional.
– Health insurance is essential.
– One medical emergency will destroy finances.
– Insurance prevents future debt.
– Low premium options exist.

» Insurance Action Plan
– Take basic term insurance immediately.
– Take basic family health insurance.
– Choose lowest premium coverage.
– Avoid investment linked policies.
– Protection matters more than returns.

» Child Responsibility Perspective
– Your daughter depends fully on you.
– Her education needs future planning.
– But first ensure family survival.
– Debt stress affects parenting quality.
– Stability helps emotional health.

» Psychological Pressure Management
– Fear is driving wrong decisions.
– Gold fear is emotional.
– Loan fear is real.
– Focus on controllable actions.
– Ignore market noise completely.

» What Not To Do Now
– Do not take new loans.
– Do not buy gold or silver.
– Do not lend money to anyone.
– Do not chase investments.
– Do not hide problems.

» What To Do Immediately
– List all loans clearly.
– Mark highest interest loans.
– Target private lender loan first.
– Reduce any discretionary spending.
– Communicate with family honestly.

» One Year Survival Plan
– Focus on EMI discipline.
– Avoid defaults at all costs.
– Build small emergency buffer slowly.
– Accept temporary discomfort.
– One year will change options.

» After One Year Options
– Approach banks for restructuring.
– Request tenure extension.
– Reduce EMI burden.
– Consolidate loans if possible.
– Negotiate interest rates.

» Long Term Recovery Vision
– Debt free life is possible.
– Income will increase with experience.
– Expenses will stabilise.
– This phase will pass.
– Discipline will shape your future.

» Emotional Bond With Gold
– Gold feels like safety.
– But debt is unsafe.
– True security is cash flow.
– True wealth is peace.
– True protection is insurance.

» Family Communication Importance
– Discuss openly with your wife.
– Take joint decisions.
– Avoid blame or guilt.
– Team effort reduces stress.
– You are partners.

» Self Worth Reminder
– Debt does not define character.
– Mistakes happen in life.
– Learning matters more.
– You are responsible and aware.
– That is strength.

» Final Insights
– Do not buy gold now.
– Do not take new loans.
– Focus fully on debt reduction.
– Close private lender loan first.
– Take basic term and health insurance.
– Pause investments if required.
– Control expenses strictly.
– Survive one year patiently.
– Stability will return gradually.
– Your situation is difficult but solvable.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

Ans: Hi Surya,

You are in a very complicated situation. This whole debt trapped needs to be worked on very judiciously. Let us go through all the aspects in detail.

1. Your total monthly household salary - 86000; monthly expense - 10000 contribution as of now; monthly EMI - approx. 1 lakhs.
2. Current loans - 36.5 lakhs from various banks at 12.5%; Gold Loan - 14 lakhs; private lenders - 2 lakhs at 18% >> totalling to 52 lakhs.
3. 50k interest per month payable - implies capital payment is very less leading to more problem.

- Keen on buying gold with loan. This is where more problem will began. Avoid buying gold using loan.
- Your focus should be on reducing your debt instead of increasing it.

Strategy to follow:
1. Close the loan with higher interest rate - 2 lakh personal lender. This will reduce your EMI and give you more potential to prepay other loans.
2. Try and take financial help from your family in prepaying small loans from banks. This can reduce your burden.
3. If you have any unused assets, can sell them to pay off your loans.

Points to NOTE:
> Avoid taking any more loans.
> When your EMI burden reduces, do make an emergency fund of 2-3 lakhs for yourself for any uncetain situation.
> Make sure to have a health insurance for yourself and family.
> Can stop your investments for now. They are of no use if your EMIs are more than your income. Can start investing once your EMI's reduce atleast by 20-30% for you.

Let me know if you need more help.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/