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 am 23 and work for an international call centre. My net monthly salary is Rs 10,500.

Due to my sister's wedding last year, I incurred around Rs 35,000 worth of expenses on my credit cards.

Thanks to my monthly household expenses and an Equated Monthly Installment of Rs 1,400 on a consumer loan, I hardly have any money to repay the credit card dues.

Even after paying my minimum amount due every month, my credit card outstanding has not decreased.

To repay my debt, I took a personal loan of Rs 50,000 for 24 months. This EMI of Rs 2,354 is effective from this May 2006, the month when my last EMI on my consumer loan gets paid.

Out of this loan amount, I have repaid my card dues.

Now how must I invest the remaining Rs 15,000 so that I can cover the amount of interest I would pay on the personal loan? I would also like to invest around Rs 1,500 every month as a monthly savings.

- Tejas Solanki

Dear Tejas,

It appears that the cost of your personal loan is about 13%. So the interest for the first year would be around Rs 5,000. If you want to invest Rs 15,000 to get a return of Rs 5,000, you are seeking a 33% post-tax return!

A risk-free return from a money market instrument would be around 6% per annum. That should give you an idea of how much risk you will need to bear in order to 'attempt' earning a 33% return.

You could end up losing your principal amount.

I recommend that you consider a prepayment of Rs 15,000 (if the loan allows for prepayment). If not, keep it safely or else you will lose this as well. Your additional Rs 1,500 per month should also be used to prepay the loan and clear debts.

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My family is into debt of Rs 40 lakh (Rs 4 million) due to a business loss.

I recently got married and my brother is still studying. My father and I manage to save around Rs 1,20,000 every month.

How must I save and pay back this debt?

- Krish

Hi Krish,

This is a question of assets (what you own) and liabilities (what you owe).

Let's talk about the liability first. Rs 1,20,000 is equivalent to 3% of the loan. In other words, it is highly unlikely that you can pay the interest on the loan, leave alone repaying the principal amount.

It looks like you will have to look at your assets to pay back your debt.

Important questions here would be to clearly understand whose liability this is and what are that person's assets. Then, you could use those assets to repay the loans.

Any machinery from the business that can be sold? Any land? Look at it from every angle. It might make sense to seek legal advice on how you could seek relief on this debt.

However, practical issues such as family survival and maintenance will obviously need to be addressed.

Since I have very sketchy information, I cannot comment further.

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