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Need help paying loans?
Devang Shah
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August 28, 2006

Got a question about your money? What you should or should not do with it? Our expert Devang Shah has the answers.

My take home is Rs 33,000 and my outflow is as follows:

Home loan EMI: Rs 9,500
Personal loan EMI: Rs 2,140 which gets over by December 2006
Apart from this, I have Rs 46,000 as my credit card repayment.

With the savings I have, kindly advise me as to how I can pay back the credit card due. From June 2006 I have
discontinued the use of credit cards as I seem to have no control over spending. Now, I only use my debit card.

- Neel

Hi Neel,

Am I missing something?

Your Equated Monthly Installment (for your home loan and personal loan) up to December is about Rs 11,700. Which leaves you with Rs 21,000 for your expenses and repayment of credit card debt.

If you can allocate even one third of this toward repayment of your credit card debt, you should be able to repay it in eight months (assuming an interest of 3% per month). By the middle of next year, you would free of two loan repayments.

What will happen over the next few months is that, out of Rs 33,000, you will use up about Rs 19,000 toward repayment of loans (9500+2140+7000). By middle of next year, your repayment burden will reduce by half.

What I would suggest is that, even then, you continue removing the full 19,000 out of your account and, if possible, double your home loan repayment speed. Alternatively, start investing that amount. I frequently call it 'paying yourself.'

When it comes to repaying a loan, we diligently follow a schedule. But when it comes to repaying ourselves (money owed to us for investing and building our own financial future security), we seem to be fairly lackadaisical. Surprising, isn't it?

Beginning today, I will encourage you to look at your debt repayment obligations as training for financial discipline that will stand you in good stead forever.

Wishing you all the best.

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Illustration: Dominic Xavier

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