The Covid-19 pandemic has led to huge financial distress, be it salary cuts, lower business revenues, or business shut down. The average Indian is struggling to manage their household needs. In such a situation, many think of borrowing to finance the most basic necessities.
At Money9, we strive to prepare you for such challenging times and help you make better decisions.
The Money9 Helpline, which endeavours to help people navigate through financial distress, hosted Mehul Ashar, CEO, Sky Financials.
Mehul answered the queries of our callers to help them understand why it is not advisable to take personal loans to pay off your already existing loans or overcome a financial crunch in covid times.
Here’s a look at some of the questions:
Nilesh Patil, Mumbai: I am paying an EMI of Rs 20, 000 on my home loan. I have invested Rs 1.5 lakh in FDs, Rs 1.5 lakh in MF, and Rs 2 lakh in gold. My bank is also extending 6 month, overdraft facilities. Which is a better option to reduce my debt burden
Mehul: First you need to analyze at what interest have you taken your loan. Then assess this with the interest rates obtained on your investments like FDs and MFs. Instead of adding another overdraft facility, you should either break your FD prematurely or liquidate your gold and reduce your debt burden.
Arnab Dutta, Kolkata: I am paying an EMI of Rs 6000 for a personal loan and my credit card amount is due Rs 75000. I am planning to take Rs 70,000 from a friend to pay the dues and start a SIP of Rs 4,000 to repay my friend in 2-3 years. Is it a good option?
Mehul: You are already in unsecured debt, both your current loans credit card, and personal are high-interest charging. If you take the third loan it will be another debt burden. You can consider borrowing it from your friend if it is a friendly loan with lower interest rates. So I would advise you to first pay off your personal loans.
Sahil Mukherjee, Kolkata: I am paying EMI for a personal loan that I had taken for my marriage in 2017. I am currently unemployed. Should I withdraw money from a premature FD and pay off the personal loan?
Mehul: Yes you should consider breaking your FD, don’t borrow any more. And reduce your personal loan. After this only go ahead with savings.
Watch the full conversation here
