Reader responses: Getting out of credit card debt

We asked readers to send us their useful ideas, advice and suggestions on how one can get out of credit card debt and mails came pouring in. Here are the first four responses on how one can get out of a debt trap: be it credit card debt or home loan debt.

First up reader Sanjay Kothari tells how he got out of credit card debt trap:

I had a huge amount of credit card debt from several banks since 2007.

Rs 85,000 from ABN AMRO, Rs 61,000 from HDFC bank, Rs 54,000 from Standard Chartered Bank. I was paying off my credit card debt in EMIs, when I suddenly lost my job in August 2008 due to recession.

My salary was Rs 40K per month(in hand) in chennai. Due to shortage of funds, I defaulted. I started to avoid calls from these banks, changed my mobile number, changed cities even while looking out for a job.

I got a job in Delhi in January 2009 at a salary of Rs 37K per month (in hand) in Delhi. My salary account was with Citibank, so I was in touch with no other bank. My conscience was continuously pricking me.

Two months after I got the job, I approached all the 3 banks, explained my situation to them and then they agreed that I could pay my outstanding dues in parts an also waived off interest charges. Since March 2009, I have been allocating only Rs 20K for me and my family (wife and infant) and the rest goes in paying off my credit card debt.

We are not doing any unnecessary spending like movies, dinners, holidays, etc. On January 25, 2010, I finished paying off all my debts, got NOCs (no dues certificate) from all the 3 banks, sent it to CIBIL (Credit Information Bureau of India Ltd) for status update (from banks and from myself).

Last 20 days have been the most satisfying days of my life as I have paid off all my debts. I live happily and can give my family all they need as our spending is already low and savings will start from this month. I have also been transferred by my company to Mumbai this month, where my allowances will automatically increase, thereby increasing my savings. Life sees to be more peaceful now.

Reader Rajendra Gupta suggests how balance transfer can help get out of credit card debt.

Follow these simple steps.

1. Avoid thinking negative. Be firm and sure in your mind that if you have taken money, you will have to repay it. That way, your credit rating will improve. You never know, when in future, you may again require funds.

2. Assess yourself. Decide how much amount you can spare, even with some difficulty, for monthly repayment. Don't be at ease. Curtail few expenses to pay faster.

3. Now arrange the funds from other sources, mentioned below, equivalent to credit card total outstanding and clear all the dues on your credit card.

4. If you have another credit card, ask for a 'balance Transfer' commonly known as BT. Rate of interest charged on BT is much lower than that charged on outstanding amount.

5. Otherwise approach any nationalised bank for a personal loan and do the same thing as mentioned above.

6. Arrange part of the outstanding from your friends/relatives/office etc. This amount, naturally, will be interest free. This way you will save a lot on interest part.

Last word of advise: Never, never think of NON-REPAYMENT. You will lose a lot.

Next is reader Govindraj who advises against keeping too many credit cards to stay out of credit card debt.

Regarding creditcard problems please note the following:

• You must check the number of credit cards in your name & other supplementary cards issued on your behalf.
• Stop buying through credit cards immediately.
• Take  loans form your dearest ones (relatives and friends, interest free), pay monthly installments regularly.
• Surrender all credit cards once you get a personal loan or a loan from your friends or relatives.
• If you are not getting loan, sell/hypothecate your assets in reputed banks that offer a reasonable interest rate.
• Sell off your vehicles and go by bus/train.
• Accept your mistakes and take life as it is.

Reader Jaywant Kulkarni's experience is related to home loan, and not credit card loan. But tips here will help in any case.

In order to get a good house in a good locality, I went little overboard and paid little higher price than my capacity. So the home loan I took was Rs 10 lakh more than what I had thought earlier. Now having taken a bigger loan, I had a mental burden to prepay some amount so that I could bring the EMI to some reasonable level. Being a salaried person, my salary is the only source of income. The only way out was to reduce expenses.

Here are some tips that will take you out of a debt trap:

Start making a note of every rupee you spend

At then end of the month, try some analysis or sorting of expense items like:

• Grocery
• Vegetables
• House-maid
• Petrol
• Hotel/eating out
• Movies
• Shopping other than the above like clothes, household items etc
• Yearly commitments like insurance premiums, school fees etc

Now separate monthly expenses, yearly expenses, and occasional expenses. Try to see what could have been avoided like hotel/eating out, movies, shopping clothes etc. See how can you reduce on monthly but must-have expenses by making arrangements for cheaper grocery shops, cheaper vegetables, saving petrol.

Plan for yearly commitments. Like save some money every month for each item. So that when the date for yearly payment comes, you do not get into negative balance. See if you can completely avoid occasional expenses. Like no traveling to native place, no holiday, no purchase of items like a new TV or new sofa.

Repeat above exercise for 2 to 3 months, and check if you are improving on the total amount you spend. If not keep making improvements.

Very important note here is that you have to follow this only for a limited period, till you come out of the debt trap. Many people whom I suggested these tips excused themselves by saying 'I can not live like this for rest of my life' or 'will I not watch a movie for rest of my life?'

Please note that you are not going to live like this for the rest of your life. It is just a question of 6 months or a year. Then you are back to normal life. The only thing that will keep you following the above tips is a hope that 'you will come out of it very soon.'

Me and my wife followed this for only 2 years, and my outstanding loan amount came down by 10 Lakh. Now I am not worried about re-paying the rest of the loan, because I think it is at a reasonable level.