Debt Counseling: Mohan Jayaraman

I have a sudden need for funds (about Rs 2.5 lakh) in the next two months. I don't want to disturb my investments. But I don't have sufficient cash. Should I take a personal loan or credit card loan?
The different considerations that go into addressing short-term need of funds are whether the loan should be secured or unsecured, the rate of interest, ability and penalties associated with pre-payment and servicing convenience. From a credit profile perspective, a secured loan, given against securities or fixed deposits, would be less indicative of credit hungriness as compared to unsecured ones like a personal loan or credit card loans. Generally, these are not based on equated monthly instalments but in the form of overdraft limits, hence they seem convenient for short-term needs. Between a personal loan and a credit card loan, the former is preferred by many for the short term.

I have four credit cards that I use regularly. I have never missed any payment. But a friend suggested I cut on the number of cards. Would you agree? My monthly take home is Rs 1.80 lakh and my monthly card bills are Rs 1.20 lakh.
The prudent path would be to ensure you make use of credit limits wisely and typically spend only as much as you can repay. A few tips that can go a long way in keeping a check on credit cards usage include:

• Set sub-limits on cards to ensure none goes over-limit individually
• Set cash withdrawal limits; use only one-two cards for cash withdrawals.
• Register for e-mail and SMS alerts on the usage of add-on cards, to monitor the spend

If an increased credit limit usage is unavoidable, you could take a report from any of the credit information companies at regular intervals and ensure you have visibility to all your credit lines and liabilities. Wise usage of credit will ensure the long-term health of your credit profile and score.

Why is credit on investment considered less risky than personal loans?
From a lender's perspective, credit on investment has underlying collateral in the form of securities, fixed deposits, bonds and so on. In contrast, personal loans are generally pure unsecured loans, with no underlying collaterals. This makes personal loans more risky as compared to credit on investment. Credit on investment, as a product, is intended to target the self-employed segment. Personal loans, on the other hand, are focused towards salaried segments with stable, regular income.

The views expressed are the expert's own. Send your queries to yourmoney@bsmail.in
Today, Mohan Jayaraman, managing director of Experian Credit Information Company of India & country manager of Experian India, answers your questions