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Ramalingam Kalirajan  |3819 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 11, 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 10, 2024Hindi

I have total 9 credit cards and have outstanding of 16 lakhs for that I am paying only minimum due for last 2 months with great difficulty. If I don't pay even minimum due for next 3 to 4 months will I be arrested and sent to jail. If arrested how many years of prison or is there any other legal proceedings the credit card providers will do . I need complete and correct answer please?

Ans: Your situation with credit card debt is indeed challenging, and it's important to understand the legal and financial implications clearly. Credit card debt can lead to significant financial stress, but there are ways to manage it effectively and avoid severe consequences. Let's address your concerns in detail.

Understanding the Legal Implications of Credit Card Debt
Firstly, it's important to note that defaulting on credit card payments is a civil issue, not a criminal one. In India, you cannot be arrested and sent to jail solely for not paying credit card dues. However, defaulting on payments can lead to other serious consequences.

Immediate Consequences of Non-Payment
Late Payment Fees and Interest: If you miss your minimum due payments, your credit card issuer will impose late payment fees and higher interest rates. These additional charges will increase your outstanding balance significantly.

Credit Score Impact: Missing payments negatively affects your credit score. A lower credit score can make it difficult to obtain loans or credit in the future and may affect your ability to secure rental agreements or even job applications.

Collection Calls and Notices: Credit card issuers will start sending reminders and notices. They may also employ collection agencies to recover the dues. These agencies can be persistent and their methods, although legally bound, can add to your stress.

Legal Proceedings and Civil Cases
If you continue to default, credit card issuers may take the following legal steps:

Legal Notice: After repeated defaults, the credit card issuer may send you a legal notice demanding payment. This is the first step in the legal process.

Filing a Civil Suit: If the dues remain unpaid, the issuer may file a civil suit for the recovery of the outstanding amount. This does not lead to criminal charges or jail time but can result in court orders to repay the debt.

Court Summons: If a suit is filed, you will receive a court summons. It is crucial to respond and appear in court. Ignoring a court summons can lead to further legal complications.

Court Judgment: If the court rules in favor of the credit card issuer, they can issue a judgment requiring you to pay the debt. The court may also allow the creditor to recover the dues by attaching your bank accounts or salary.

Steps to Manage Credit Card Debt
While the situation is stressful, there are several steps you can take to manage your credit card debt:

Prioritize Payments: Try to at least make the minimum payments to avoid additional fees and keep your account from going into default.

Debt Consolidation: Consider consolidating your credit card debt into a single loan with a lower interest rate. This can make your payments more manageable.

Negotiate with Creditors: Contact your credit card issuers and explain your situation. They may offer a temporary reduction in payments, a lower interest rate, or a structured repayment plan.

Credit Counselling: Seek advice from a certified financial planner or credit counselling service. They can help you create a budget, manage your expenses, and negotiate with creditors.

Sell Non-Essential Assets: If possible, sell non-essential assets to raise funds to pay off part of the debt. This can provide immediate relief and reduce the interest burden.

Potential Legal Assistance
If you are overwhelmed, consider seeking legal assistance. A lawyer can help you understand your rights and obligations and represent you in negotiations or court proceedings if necessary.

Long-Term Financial Planning
Budgeting: Create a detailed budget that tracks all your income and expenses. This will help you identify areas where you can cut costs and free up funds to pay off debt.

Emergency Fund: Once your immediate debt issues are under control, focus on building an emergency fund to avoid future financial crises.

Regular Savings and Investments: Start a systematic investment plan (SIP) in mutual funds or other investment options to grow your savings over time.

Financial Discipline: Avoid using credit cards for non-essential purchases. Try to use cash or debit cards to prevent accumulating further debt.

Final Insights
Defaulting on credit card payments can lead to severe financial and legal consequences, but you cannot be arrested or sent to jail for non-payment. It’s crucial to take proactive steps to manage your debt, such as negotiating with creditors, seeking professional advice, and creating a realistic repayment plan. By taking these steps, you can work towards financial stability and avoid the negative impacts of debt default.

Remember, seeking help early can make a significant difference. Financial planning and disciplined spending are key to overcoming debt and building a secure financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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.

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Ramalingam Kalirajan  |3819 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 16, 2024

Asked by Anonymous - Apr 14, 2024Hindi
Hi I am having more than 5 credit cards and Personal Loan along with a home loan..I am really facing problem to pay my dues and I have fallen in a debt trap. I am taking loan to pay off my another loan. I have no intention that I will not pay off my dues but on the other hand I am facing huge issue to pay off my debts, due to this even my Credit score and CIBIL is affecting. Kindly provide me a suggestion so that I can solve this issue without affecting my CIBIL.
Ans: Managing multiple loans and credit card debts can be overwhelming and lead to a debt trap, impacting your credit score and financial health. Here's a step-by-step plan to help you manage and eventually pay off your debts without further damaging your CIBIL score:

Assess Your Debts:

List down all your debts, including credit cards, personal loans, and home loans.
Note down the interest rates, outstanding amounts, and minimum monthly payments for each.
Create a Budget:

Make a realistic monthly budget to track your income and expenses.
Identify areas where you can cut expenses and allocate more funds towards debt repayment.
Prioritize Debts:

Prioritize debts with the highest interest rates to save on interest costs.
Continue making minimum payments on all debts to avoid penalties and further damaging your credit score.
Debt Consolidation:

Consider consolidating high-interest debts into a lower-interest loan or balance transfer credit card.
This can simplify payments and reduce overall interest costs, making it easier to manage.
Negotiate with Lenders:

Reach out to your lenders to negotiate lower interest rates or extended repayment terms.
Many lenders offer hardship programs or restructuring options to help borrowers in financial distress.
Increase Income:

Look for additional sources of income to boost your monthly cash flow.
This could be through a part-time job, freelancing, or selling unused items.
Financial Counseling:

Consider seeking professional financial counseling or debt management services.
They can provide personalized advice and strategies to manage and pay off your debts effectively.
Avoid Taking New Loans:

Stop taking new loans or using credit cards until you have paid off existing debts.
Focus on living within your means and building a savings buffer for emergencies.
Monitor Your Credit Score:

Regularly check your credit report to monitor your progress.
Ensure all information is accurate and dispute any errors to maintain a healthy credit score.
Stay Committed:

Stay committed to your debt repayment plan and avoid falling back into old habits.
Celebrate small victories along the way to stay motivated.
Remember, managing debt requires discipline, commitment, and patience. It may take time to get out of debt, but with a structured plan and determination, you can achieve financial freedom and improve your CIBIL score over time.

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