Timeline for How can I break the cycle of taking on more debt to pay the rates for debt I already have?
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| Nov 17, 2020 at 14:11 | comment | added | Grade 'Eh' Bacon | @private For many people, credit card use has become a way of life, and it does have benefits. Unfortunately what we have lost in moving to this method is the psychological connection between tangibly 'giving up' cash to get what we want. This can easily lead to tricking yourself into thinking that you are spending less than you actually are. To combat this, you must prepare a budget based on reality, and review your statements constantly to review how you have performed against your budget. | |
| Nov 17, 2020 at 6:07 | comment | added | private | I should mention this: the cashless transaction increase in India after the 2016 demonetization. Since then majority of shops support cashless transaction using the app like Paytm, Google pay, Amazon pay and many more. Also many bank fine user with ATM charge if you do debit money from ATM machine more than X time in india. That led me to do cashless transaction everywhere and it didn't turn out good for me. | |
| Nov 16, 2020 at 13:54 | comment | added | Grade 'Eh' Bacon | @private Agree with Daniel Hatton - the reason you weren't aware of this, is because massive credit card companies have done everything they could, to make you believe that their outrageous fees were normal. This isn't due to your ignorance so much as misleading advertising. No one knows everything all at once, and you can take this as a point of confidence building that you are taking steps to learn more and do better. Truly, I wish you luck on your debt repayment journey! | |
| Nov 14, 2020 at 22:46 | comment | added | user103908 | @private 'Didn't know the difference between monthly and yearly charges. I thought home loan is 9.5, credit card is 3.4 let's use card every where.' If it's any comfort, that was probably the credit card issuer's intention when they chose to quote a monthly, rather than a yearly, interest rate in their advertising materials. In the jurisdiction where I live, regulators don't allow credit card issuers to do that. | |
| Nov 14, 2020 at 13:47 | comment | added | private | After asking the question it was realised to me that I am stupid, ignorant, lazy who doesn't have budget. Didn't know mutual fund is not helping me. Didn't know the difference between monthly and yearly charges. I thought home loan is 9.5, credit card is 3.4 let's use card every where. I purchased phone and renue health insurance worth of 55k using card. It was before 4-5 months. Since then I haven't made any major card payment. But was running out of fund each month and using card for that extra 10,000. Then it was out my control I asked the question. | |
| Nov 14, 2020 at 13:35 | comment | added | private | I asked the question because my finances/budget management was out of control and didn't know what to do. | |
| Nov 14, 2020 at 13:31 | comment | added | private | For some reason it was not clear to me that 3.4% per month is bad. The credit card statement has example of 3.4% and not that it will be 40-50% yearly. It wasnt obvious engough to me till the total amount was reached 200k and interest was around 8k. Hell I didn't know the interest when I asked the question. | |
| Nov 14, 2020 at 13:25 | comment | added | private | But I definitely have to stop the expense which is greater then income otherwise I will be soon in much bigger problem. | |
| Nov 14, 2020 at 12:03 | comment | added | user103908 | ... 2. Don't pay anything into that mutual fund unless and until its interest rate is higher than the highest of the highest interest rate you're being charged on any of your debts and the current rate of inflation in India. 3. Don't try to pay off the larger of your two home loans any faster than you're contractually obliged to (i.e. don't make any extra repayments on it in addition to the standard monthly payment); the interest rate on it is lower than the rate of inflation in India, which means the later you pay it off, the better value you'll get. | |
| Nov 14, 2020 at 11:56 | comment | added | user103908 | ... the main things you do need to do are 1. Try to refinance the credit card debt at a lower rate of interest. A quick Google suggests there are unsecured personal loans on the market in India at annual interest rates of around 11%, which is a lot better than those credit cards. (One slight note of caution: I know you're keen to pay the debt off quickly, but don't choose a loan with such a short repayment term that you can't comfortably meet the monthly payments.)... | |
| Nov 14, 2020 at 11:46 | comment | added | user103908 | @private OK, so the credit card balances are decreasing, just not as fast as you'd like. I think most of the answers on here have been written on the assumption that the balances were increasing. Now we've got your confirmation that that's not the case, we can all calm down a bit. No "fire" is "burning", no-one is "drowning", no-one is "in deep s**t". You don't need to make drastic changes to your lifestyle to address any debt crisis (although you may still choose to make some of the suggested changes for reasons of environmental sustainability and/or personal wellbeing)... | |
| Nov 14, 2020 at 3:28 | comment | added | private | @DanielHatton I was in assumption that I was paying 25000 per month to diff. Cards since past few months. I thought that it will be overed with in 8-12 months. But on reality it just decreasing by 7000 rs per month after considering 10,000 I am additionally spending + 8000 interest. So it will take around 3 year to complete. So now I have to stop that additional 10,000 plus mutual funds. | |
| Nov 13, 2020 at 21:12 | comment | added | nick012000 | @user253751 Yeah, that’s my understanding about why it’s so important to get a relieving letter when you leave a job there. You need to get formally dismissed before you can start a new job since it’s not legal to work two at once. | |
| Nov 13, 2020 at 18:58 | comment | added | Fattie | As a matter of conscience, I did throw in a downvote here since, overwhelmingly, "right now as we type", (1) the wife has to walk out the door and get a at least part time job and (2) the husband has to immediately start working nights and weekends. Like, "now". We're talking about a family that has a child in their care. The fire is burning NOW, OP and wife need to work more NOW. Sure, around the edges, do better financial planning. that's my hot take, and I'm out! | |
| Nov 13, 2020 at 17:44 | comment | added | user103908 | Something else worth bearing in mind: the current rate of inflation in India is 7.69%, which, even before OP makes any repayments, is removing about 15000Rs/month from the real-terms value of OP's debts (and about 300Rs/month from the real-terms value of OP's savings in the mutual fund - as other posters have said, making more payments into that mutual fund is a really bad idea, since I very much doubt its interest rate is as high as the rate of inflation.) | |
| Nov 13, 2020 at 17:39 | comment | added | user103908 | @Grade'Eh'Bacon 'The OP explicitly says they have not included all other spending types (food, electricity, "etc."),' One can infer the total value of that other spending from 'I spend an extra ~10,000 using credit cards'. I'd already taken that inferred value into account in the calculation in my first comment. | |
| Nov 13, 2020 at 17:35 | comment | added | Grade 'Eh' Bacon | @DanielHatton The OP explicitly says they have not included all other spending types (food, electricity, "etc."), so we know there are more costs lurking out there that are not yet defined. Prudent assumption is that the credit card balances are growing. | |
| Nov 13, 2020 at 17:13 | comment | added | user103908 | @Grade'Eh'Bacon I'm just working on the assumption that the explicit, quantitative statements made in the question are true. I agree that this raises something of a puzzle as to why OP seems so terribly worried. | |
| Nov 13, 2020 at 16:58 | comment | added | Grade 'Eh' Bacon | @DanielHatton Principal payments against the mortgage are only relevant from a total-value perspective, not a cashflow perspective (unless the OP sells their house to get out of debt, but in that case a few extra months of mortgage payments will not noticeably change the value of that proposition). If you believe OP is truly decreasing balances month-over-month, then why is this month when they finally snapped and asked the question? To me, it doesn't seem likely. I have never seen someone turn their credit card-debt-ship around and only then say "how do I get out of this hole?* | |
| Nov 13, 2020 at 16:08 | comment | added | user103908 | 'Your expenses are currently higher than your income!' As @JimmyJames tried to point out above, this is (assuming that the data provided in the question are accurate) simply not true. By my arithmetic, based on the data in the question, the OP is decreasing the principal on his/her credit cards (net of interest and of additional credit card spending) by about 7000Rs/month, and decreasing the principal on the home loans by about a further 9000Rs/month, as well as depositing 2000Rs/month in some sort of savings account. | |
| Nov 13, 2020 at 16:05 | comment | added | cbeleites | One practical tool of getting a budget work for things like groceries (in particular if OP runs into trouble that "some month is left at the end of the money" is to put the weekly budget for groceries etc. into envelopes. That at least makes sure that the last week of the month is no more miserable than the others. And since paying in cash has been shown to be psychologically more painful than card or online spending, cash is king right now. Also, if liquidating e.g. the life insurance or investment plan does not work for some reason, there may be the option to put them dormant for now. | |
| Nov 13, 2020 at 15:53 | comment | added | Criticizing Israel not allowed | @nick012000 Really? working for two jobs is illegal in India? | |
| Nov 13, 2020 at 15:36 | comment | added | private | Thanks for the link.@brian | |
| Nov 13, 2020 at 14:55 | comment | added | Brian | @private: A good starting point for preparing a budget is to just copy one of the budget spreadsheets people have posted. As long as you are careful to fill in all expenses, they're mostly self-working. There are a bunch of them posted on money.stackexchange.com/q/102/71414 and on reddit.com/r/personalfinance . | |
| Nov 13, 2020 at 1:22 | comment | added | nick012000 | @NotThatGuy"especially if this involves the additional stress of taking a second job" IIRC that's not even legal in India. | |
| S Nov 12, 2020 at 16:57 | history | suggested | winny | CC BY-SA 4.0 |
removed period after exclamation mark, 2 -> two and minor changes.
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| Nov 12, 2020 at 16:28 | comment | added | private | Thanks I have checked the interest of all credit cards and it seem to be around 7,700. And I am spending on average 10,000 every month. So I am actually paying only 7,000 rs. Never thought that way before. Now I am scared to death. I am planning to take personal loan around 14% for 2.5 lac. And then destroy all cards. Hopefully I might recover. | |
| Nov 12, 2020 at 15:31 | comment | added | Grade 'Eh' Bacon | @private If you search this site for the 'budget' tag you will bring up a lot of useful tips, or do the same on google. This is not a recommendation, but many people like Dave Ramsey's budgeting tips, and you can find the core of it here: daveramsey.com/blog/the-truth-about-budgeting | |
| Nov 12, 2020 at 15:30 | comment | added | Grade 'Eh' Bacon | @JimmyJames Consider the 8-10k in interest being tacked on to each, based on rates provided, and a fudge factor of 5k for the OP to be wrong about things [without a budget it is unlikely he has full understanding of expenses being incurred], and you end up with increasing credit card balances. I find it unlikely that OP is asking this at anything but the lowest point to date; if balances were going down, that isn't indicated anywhere [I think there is some confusion in what he calls expenses vs payments being made]. | |
| Nov 12, 2020 at 14:48 | comment | added | JimmyJames | I don't think the first statement is factually correct. Unless I'm missing something the OP is paying a net 15K towards the credit card debt each month. | |
| Nov 12, 2020 at 14:42 | review | Suggested edits | |||
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| Nov 12, 2020 at 11:35 | comment | added | private | Can you please also share some link of how to prepare budget? Is there any app? Is there a excel sheet reference which I can use it as references | |
| Nov 12, 2020 at 10:10 | comment | added | Michael | @Fattie: I’d consider it a last resort. Before working more I’d rather sell the house, move into a cheap flat and eat mostly potatoes and water. | |
| Nov 12, 2020 at 9:40 | comment | added | NotThatGuy | @Fattie Working every weekend for a year or two seems like a great way to have a mental breakdown, especially if this involves the additional stress of taking a second job (plenty of jobs don't pay by the hour and you'll run into problems if you work excessive paid overtime). A mental breakdown probably wouldn't be worth the cost of eliminating some debt, especially if there are other options one could've taken. Working that much might work for some people, but approach with caution. | |
| Nov 12, 2020 at 7:40 | comment | added | Nelson | And with regards to Work More, you have to NOT SPEND IT! Working More and then proportionately increasing your spending will absolutely destroy your finances. It sounds obvious, but large majority of high earners like professional athletes fall into this trap, and crash real bad when their career ends. | |
| Nov 12, 2020 at 3:46 | comment | added | private | I have saving of 50,000 on both mutual fund. But its locked for 3 year. I can't withdraw it. Its tax relief mutual fund. So if I will stop mutual fund today then I will get money after 3 year. | |
| Nov 12, 2020 at 1:56 | comment | added | Grade 'Eh' Bacon | @Fattie Agreed - and I do say buried in the above under budgeting 'Is earning more income possible, either with a side job, or having someone else in your household also work?', though I can hardly blame anyone for not hacking through this jungle of an answer to find it! | |
| Nov 11, 2020 at 22:57 | comment | added | Fattie | G.E.B., I worry about not mentioning Work More. Realistically the very first thing OP will have to do is work this w/end, and each w/end for a year or two, and Wife will have to get a job at least part time. (In India, it's all-but certain a bevy of family will attend the child.) Yes, each of 10/10 points here is as critical as breathing, but "point 0" more income. (As mentioned by A Commentor, the great "delivery guy" internet anecdote.) | |
| Nov 11, 2020 at 18:00 | history | edited | Grade 'Eh' Bacon | CC BY-SA 4.0 |
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| Nov 11, 2020 at 17:21 | history | edited | Grade 'Eh' Bacon | CC BY-SA 4.0 |
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| Nov 11, 2020 at 16:26 | history | answered | Grade 'Eh' Bacon | CC BY-SA 4.0 |