Got a question about your money? What you should or should not do with it?

Our expert Devang Shah has the answers. Got a question? Please write to us.

I bought a house last year for Rs 30 lakh (Rs 3 million) for which my Equated Monthly Installment is Rs 22,000.

I am into huge debts in the form of a personal loan (Rs 50,000) and overdue bills on my credit cards.

 My net salary is Rs 54,000. My wife is currently not working.

 As a result of my loans, my lifestyle has been downgraded from upper middle class to lower middle class.

 The only way I feel that I can get out of this is by selling the house. I have an offer of Rs 38 lakh (Rs 3.8 million).

 Then I can repay my debts and start off again.

 What do you suggest?

 - Sreeni

Dear Sreeni,

You wish to get debt-free, is that right?

But before I make any suggestion, it would be important for me to know how you incurred the debts. The question is what led you into debt? What did you need the borrowed money for?

Did you borrow it to help you make the downpayment on the house? If so, it really is alright. The money is still with you but in a different form. You are now holding it in the form of property.

If this is the case, you just need to plan to pay it back over a period of time, just like you are paying back your EMIs on your home loan.

If you borrowed to finance your lifestyle, then we have a problem. Because, even if you manage to achieve a zero debt position by selling your house, it may only be a temporary solution. You could find yourself in a similar spot again. Nothing will stop you from overspending to maintain a lifestyle. My worry is that, the second time, you won't have the house as an asset.

Having said all this, I can also see your willingness to change your lifestyle. In which event, you could in any case plan to pay off the debts without incurring any new ones.

You say you have a personal loan of Rs 50,000 and I am assuming a credit card debt of Rs 25,000. If you are paying an interest of, say, 2.5% per month on all your debts (other than the home loan), you could pay back Rs 75,000 in less than two years if you pay only Rs 5,000 every month.

While this is only a guess, it appears to me that wiping off your debts for once might only be a temporary solution. What might be more effective would be a permanent solution -- a change in spending patterns/ lifestyle, which in any case you are more than willing to implement.

From what I gather, you are pretty concerned about downgrading your lifestyle. I think you must seriously consider living within your means. And, in the short-run, you will have to make sacrifices to pay back your debt.

I would advise you against selling your house because that is a pretty radical decision and will not get you anywhere.

• Can I repay my brother's loan?

 I live in a small town and my wife and I have a monthly take-home of Rs 7,500.

 My credit card debt is around Rs 1,40,000, personal loan of Rs 80,000 and other loans of Rs 1,20,000.

 Just to repay the minimum on my card, I end up borrowing. So am caught in the cycle.

 I am really desperate. What must I do?

- Narendra Vila

Narendra, it would have helped if you mentioned your age. However, I am going to assume that you are in your late twenties.

Also, you never mentioned what got you into debt. Since you have mentioned credit card and personal loans, I am assuming you either borrowed for expensive entertainment or payment of medical bills.

You might wonder what business I have to ask where you have spent the money.

If your debt in the vicinity of Rs 3,00,000 is incurred due to personal amusement and accessories, you most probably are in need of personal counselling.

Start an open dialogue with the people who have lent you this money. Tell them your position. Your income is probably close to just the interest expense on this loan, so you have little hope of clearing your debt in the current circumstances.

You need to find out if they can provide you with some relief like lowering the interest rate (if the 'other loans' are from family or friends).

You could also ask them to work out the loan by giving you a long tenure and a fixed repayment amount every month. This will ensure that the amount you pay every month in the form on an Equated Monthly Installment falls within your salary.

Alternatively, find out if they are willing to accept any assets that you may have (like a car, music system, jewellery) as a one-time settlement of the dues you owe to them.

Since I am assuming that you are in your twenties, you probably need career planning.

Time and money spent on building a satisfying career could be truly worth its while.

Illustration: Dominic Xavier

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