Are you surrounded by big loans? Look for debt couseling

Adhil ShettyBankBazaar.comGautam and Yamani, a double income couple, lived a good life with their kids. Not unlike today’s generation, they owned a well-furnished flat, a sedan car and enjoyed a great lifestyle, supported by a combination of home, car and personal loans. The two earned enough to pay the EMIs on their loans, pay off their credit cards dues and support their lifestyle, but not enough to leave behind good savings for a rainy day. Gautam and Yamini realized this when Gautum met with an accident, and needed six or more months’ bed rest. He lost his job, and their annual income halved. Yamani also, couldn’t attend her job for some months, as she had to take care of her bedridden husband and kids, singlehanded.They suddenly realized that they were struggling to make ends meet and mounting debts could have them evicted from their house. Yamini was about to break down when she got to know about a credit counseling organization.Let us see how debt counseling can help in such situations.What is Debt Counseling?A counseling service offered to address those debts that are beyond a person’s debt paying ability is called debt counseling. This facility could help one come out of serious debts by ensuring the right budgeting and repayment plan on right time and at the right place.Debt counseling agencies not only provide their clients with wise advice, but also negotiate with creditors on their behalf, in order to work out a reasonable payment plan and thereby help you to come out of the debt web.How debt counseling helpsThere are two ways by which you could get help:Counseling: The counseling service could comprise the advice only and nothing more. The service provider analyzes your current financial position, debt structure, and causes for such situation. Then, they would work out the possible repayment options and determine the best one. They also work out a budget for you, setting limits for your expenses and provide knowledge to deal with your finances in better ways.Negotiating debt: If simple counseling is not enough, you can get them to help you directly to negotiate and deal with creditors on your behalf. The negotiations could include lowering the interest rates, waiving the late payment penalties, options like step-up repayment, loan restructuring, etc. This option is not free and include fees depending upon organization, debt amount, and other factors.Methods such as debt consolidation, debt relief, DIY debt reduction approach, debt settlement, etc. are used by counselors to help you in overcoming debts.Debt Counseling service providersThere are two types of agencies that offer credit or debt counseling. One is non-profit organizations; the others are players who charges for their services. Non-profit debt agencies charge no or low fees. Some private players offering debt counseling are Debt Doctor, Credit Sudhaar.Banks also have separate debt counseling wings. Bank of India’s Abhay Credit Counseling Service, Grameen Paramarsh Kendras of Bank of Baroda are examples.When should one take Debt Counseling?The answer to this question is a little complicated. A lot depends from case to case. If your situation is similar to Yamani’s, i.e. beyond your ability to cope up with the debts, then such situations can be overcome by approaching a credit counseling agency.•Look for a bank-offered service first.•Share everything; do not hide anything from your debt counselor.•Beware of possible unethical practices followed by private players such as high fees asked upfront•Know the terms and conditions thoroughly and get into a written agreement, leave no room for ambiguity.Bank-offered debt counseling centers work according to RBI guidelines. However, they handle cases only those pertaining to their bank. If you have multiple loans from different banks, you can check if the bank with the highest loan offers debt counseling, so that you are relieved from the heavy debt first. They do not charge any fee for the services offered.RBI has instructed all banks to open debt counseling centers in all major districts. Therefore, you can first check with your bank if they are offering any such services.Prevention is better than cure. Therefore, before getting into any debts, it is advisable to check your financial position and affordability of the loan. If your EMIs are above 40-50% of your monthly income, you need to be extra cautious. Also, avoid taking new loans to settle the existing ones.