Overwhelmed with Debt: How Do I Come Clean to My Parents?

Ans: You’re facing a tough financial challenge, and it’s understandable. Managing multiple loans and credit card debts on a low salary is stressful. You’ve taken a loan of Rs. 3,00,000 and additional credit of Rs. 1,00,000, leading to overwhelming EMIs. Your daily expenses make it hard to manage these debts, causing anxiety and depression. Let's explore a plan to get you out of this situation and towards financial stability.

Prioritising Mental Health
First and foremost, your mental health is crucial. Financial stress can take a heavy toll. Please know that you’re not alone, and it’s okay to seek help. Talking to a trusted friend, family member, or professional can ease the burden. Remember, mental well-being is as important as financial stability.

Assessing Your Debts
Let’s break down your debts:

Personal Loans: Rs. 3,00,000
Credit Card Debt: Rs. 1,00,000
Your total debt stands at Rs. 4,00,000. Given your monthly salary of Rs. 20,625, this debt load is unsustainable. The first step is to understand the exact EMIs and interest rates associated with each loan and credit card.

Creating a Debt Repayment Plan
1. List All Debts

Write down all your debts with their respective EMIs, interest rates, and remaining balances. This helps you see the full picture.

2. Prioritise High-Interest Debts

Focus on paying off high-interest debts first, usually credit cards. These debts grow faster due to high interest, making them harder to repay if not tackled early.

3. Debt Consolidation

If possible, consolidate your loans. This means combining all your loans into one with a lower interest rate. It simplifies repayment and reduces the overall interest burden. Contact your bank for options. They may offer a consolidation loan.

4. Negotiate with Creditors

Approach your creditors and explain your situation. Sometimes, they can offer reduced EMIs, lower interest rates, or extend the loan tenure. This can ease your monthly payment burden.

5. Avoid Taking More Loans

It’s crucial to stop borrowing more money. Avoid any more personal loans or credit. Taking more loans will only worsen your financial situation.

6. Automate Payments

Set up automatic payments for your EMIs. This ensures that you don’t miss payments and incur late fees, which add to your debt.

Cutting Down Expenses
1. Create a Budget

List your essential expenses—rent, groceries, utilities—and allocate your salary accordingly. See where you can cut down unnecessary spending.

2. Reduce Discretionary Spending

Limit spending on non-essentials like dining out, entertainment, and shopping. Redirect this money towards paying off your debt.

3. Focus on Essentials

Stick to spending on essentials only. Avoid any luxury purchases until your financial situation improves.

Exploring Additional Income Sources
1. Part-Time Work

Consider taking up part-time or freelance work. Even a few extra hours a week can significantly increase your income, helping you pay off debts faster.

2. Sell Unnecessary Assets

If you have items at home that you no longer need—gadgets, furniture, etc.—consider selling them. The extra money can be used to pay off debts.

3. Rent Out Space

If you have extra space in your home, consider renting it out. This could bring in additional income to help with debt repayment.

Building an Emergency Fund
Even while paying off debts, it’s essential to build a small emergency fund. Start with a goal of Rs. 5,000. This fund is for unexpected expenses, so you don’t need to rely on credit cards or loans in emergencies.

Planning for the Future
1. Start Small Savings

Once you’ve stabilised your debt situation, start saving a small portion of your income. Even Rs. 500 a month can make a difference over time.

2. Invest Wisely

When you’re ready, consider investing in mutual funds through a Certified Financial Planner (CFP). Start with small SIPs. These offer better returns than traditional savings methods like FDs.

3. Focus on Long-Term Goals

Think about your long-term financial goals—buying a house, retirement, etc. Start planning for these once your debts are under control.

Final Insights
You’ve acknowledged your financial difficulties, which is the first step toward solving them. With a structured plan and disciplined approach, you can overcome this challenge. Focus on repaying high-interest debts first, reduce unnecessary expenses, and explore additional income sources. Building a small emergency fund and planning for future investments are also key steps.

Remember, there’s a way out of every problem. It might take time, but with persistence, you can regain control over your finances and live a stress-free life.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Managing debt as a student can be challenging, but there are ways to handle it without involving your parents. Here’s a detailed plan to help you manage and eventually eliminate your Rs. 40,000 debt.

Assessing Your Financial Situation
Understanding the Debt
Total Debt:

Rs. 40,000.
Interest Rate:

Determine the interest rate on your debt. This helps prioritize repayment.
Monthly Obligations:

List your monthly expenses, including essentials and discretionary spending.
Creating a Repayment Plan
Budgeting
Track Expenses:

List all your monthly expenses. Categorize them into essentials (rent, food, transportation) and non-essentials (entertainment, dining out).
Identify Savings:

Find areas where you can cut back. Aim to save as much as possible to allocate towards debt repayment.
Set a Budget:

Create a realistic budget. Allocate a specific amount each month towards debt repayment.
Generating Additional Income
Part-Time Jobs:

Look for part-time jobs that fit your schedule. Tutoring, freelance work, or campus jobs are good options.
Sell Unused Items:

Sell items you no longer need online. This can provide quick cash.
Freelancing:

Use your skills to offer freelance services. Writing, graphic design, and coding are in demand.
Prioritizing Debt Repayment
High-Interest Debt:

Focus on paying off high-interest debt first. This reduces the total interest you’ll pay.
Snowball Method:

Alternatively, pay off the smallest debts first. This gives a psychological boost as you eliminate debts.
Debt Consolidation:

If you have multiple debts, consider consolidating them into a single loan with a lower interest rate. This simplifies repayment and may reduce interest.
Reducing Expenses
Essentials vs. Non-Essentials
Essentials:

Rent, food, transportation, and utilities. Aim to minimize these where possible without compromising your well-being.
Non-Essentials:

Entertainment, dining out, and luxury items. Cut back or eliminate these expenses until your debt is manageable.
Student Discounts and Offers
Use Discounts:

Take advantage of student discounts on essentials and non-essentials. Many businesses offer discounts to students.
Campus Resources:

Utilize campus resources like libraries, gyms, and career centers. These can save you money on books, fitness, and job searches.
Seeking Financial Assistance
Scholarships and Grants
Apply for Scholarships:

Research and apply for scholarships. Many organizations offer scholarships to students in need.
Grants:

Look for grants offered by your university or external organizations. These don’t need to be repaid.
Emergency Funds
University Emergency Funds:

Some universities offer emergency funds for students in financial distress. Check with your university’s financial aid office.
Local Charities:

Research local charities or non-profits that assist students in financial need.
Building Financial Literacy
Educate Yourself
Financial Literacy Courses:

Take free online courses on personal finance. Understanding how to manage money is crucial for long-term financial health.
Books and Articles:

Read books and articles on budgeting, saving, and investing. The more you know, the better you can manage your finances.
Creating Long-Term Financial Goals
Short-Term Goals:

Pay off your Rs. 40,000 debt within a specific timeframe. This is your immediate priority.
Medium-Term Goals:

Start saving for an emergency fund. Aim to save at least 3-6 months’ worth of living expenses.
Long-Term Goals:

Plan for future financial stability. This includes saving for major expenses and investing for the future.
Maintaining Financial Discipline
Avoiding Future Debt
Credit Card Use:

Avoid using credit cards unless you can pay off the balance in full each month. Credit card debt can accumulate quickly due to high-interest rates.
Loans:

Only take out loans for essential expenses. Avoid borrowing for non-essential items or luxury goods.
Regular Financial Check-Ups
Monitor Your Progress:

Regularly review your budget and debt repayment plan. Adjust as needed to stay on track.
Celebrate Milestones:

Celebrate small milestones in your debt repayment journey. This keeps you motivated.
Building a Support Network
Friends and Mentors
Seek Support:

Talk to trusted friends or mentors about your financial goals. They can offer advice and support.
Accountability Partner:

Find someone who can hold you accountable for your financial decisions. This can help you stay disciplined.
Financial Counseling
University Resources:

Many universities offer financial counseling services. Take advantage of these resources for personalized advice.
Online Resources:

Use online tools and resources for budgeting and financial planning. Apps and websites can help you stay organized.
Final Insights
Dealing with debt as a student can be overwhelming, but with the right approach, you can manage and eliminate it. By creating a budget, generating additional income, and cutting unnecessary expenses, you can start paying off your Rs. 40,000 debt. Utilize student discounts, scholarships, and emergency funds where possible. Building financial literacy and maintaining discipline will help you avoid future debt and achieve financial stability.

Remember, you’re not alone in this journey. Many students face similar challenges. With determination and the right strategies, you can overcome this hurdle and build a secure financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Try and see if you can get any moratorium on the loan repayment from the lender.

If this works you get some time to focus and improve your earnings.

Port the loan to another agency if the ROI is higher.

Last option would be sell any unutilized real estate property or other asset to repay the loan.

Maybe you continue to handle business and your spouse decides to take up a job or you both take up jobs till the loan is repaid.

Loan repayment should be the topmost priority of your family.

Ans: Dear Anonymous,
Oh, yes, you are thinking and doing the right thing.
You have done what needs to be done for parents when you could and if by not supporting them with money now has made them judge you and distance you, then well, what can you do?
Yes, it's unfortunate that your children don't have the opportunity to get the love and attention of their grandparents, but if you look at how immature they have been and dragging you and your husband down, it's better to keep the children away from all this drama until things settle.
Children don't need a lot of people, they just need people who love them. I am sure you and your husband are doing just that. Focus on yourselves and make it work as a family. You deserve to be at peace after all that you have gone through. SO, don't waver and keep doing what you have so far to maintain that peace of mind.

All the best!
Anu Krishna
Mind Coach|NLP Trainer|Author
Drop in: www.unfear.io
Reach me: Facebook: anukrish07/ AND LinkedIn: anukrishna-joyofserving/