Debt counselling: Sanjay Agarwal

Two years ago, I took a home loan. I quit my job recently and want to start my business. My savings after excluding all personal and business-related expenses over the next six months will not be sufficient to pay the equated monthly instalments (EMIs) for my home loan. What should I do?
Paying EMIs are fixed monthly obligation, like house rent, and you should have considered this before resigning. Regular payment of EMIs is important to maintain a good credit history with the credit bureaus, so that you can get a business loan when you need funds to expand your business. Your approach should be to pay your EMIs regularly, cut down your personal expenses and focus on earnings in terms of amount and speed.

Hopefully, you will start generating profits before your savings run out. In case of an unfortunate delay in getting positive cash flows, you should talk to your banker and inform him that there could be non-payment of EMIs for two-three months, after which you would clear all your outstanding dues. Beyond this period, your business better start generating cash for you to fulfil your financial obligations.

In the last one-and-half years, I borrowed money from family and friends for my wife’s medical treatment. It was when I was already servicing two loans for my business and house. As on date, I need to return over Rs 1 crore. I have investments worth Rs 50 lakh in the stock market and government saving schemes. My monthly income is Rs 70,000, of which Rs 30,000 is used for our monthly expenses. But, the remaining does not suffice my loan payout. I have not been able to pay two of my personal loans in the last four-five months and one credit card bill, as I had to pay back a family member first who needed the money back.
Your situation is not so grim as you have substantial liquid investments. You need to prioritise your loan settlement. First, pay back your bank loans, since these are costly, and non-payment will result in poor credit history with the credit bureaus.

I will recommend you to liquidate your investments, particularly since the stock market is good at present. Use 90-95 per cent of the money recovered to settle your urgent loans, and invest the balance in risk-free instruments such as fixed deposits for contingencies. Also, you may consider settling other loans in the order of priority by selling some sparingly-used assets, or obtaining a cheap and long-term bank loan against your assets, since you can pay up to Rs 40,000 as EMI. As a lesson, consider taking health insurance policies for your entire family.

The writer is senior vice-president & group head (retail strategy & branding), Arcil. Send your queries to yourmoney@bsmail.in