Fighting the battle against debt:: Business Line,

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Akash was an IT employee who was well settled in his career. With a comfortable take-home pay, he indulged in a premium car and apartment. He invested all his savings in stocks. But then, the stock market started tumbling. To make matters worse, Akash was laid off when his company was brought over.

DEBT COUNSELLING

How did Akash cope? He approached a debt counselling centre. They showed him the right way to manage his finances besides mediating between him and his bank. Based on the debt counsellor's advice, his wife obtained a loan against ancestral property bequeathed to her. This was used to pay a portion of Akash's home loan and another portion of his car loan as part prepayment. He also obtained written consent from his bank allowing him to resume repaying his loan once he got a job. Yes, banks do oblige in such cases, if you manage to repay most or at least a part of the money. Six months later, Akash managed to land a job with a reasonably good pay. He resumed his EMI payments, and, as banks were slashing interest rates, he negotiated with his bank for a lower interest rate.

SIMPLE RULES

Agreed, luck was on his side. However, he started following simple but smart methods, which you can too, to avert a future disaster.

- He put aside three months of his pay into a separate account meant to serve as an emergency fund with an aim to add three more months of pay.

- He ensured that his current EMI did not exceed 40 per cent of his current income. He managed to prepay his home loan at regular intervals to help reduce the debt period.

- He kept his monthly expenses, including loans, within 60 per cent of his income and put aside the rest as savings and investments.

- When investing, he took care to diversify portfolio and not stick to equities alone.

COPING WITH DEBT

The suggestions above help you manage debt. But should find yourself stuck in debt and don't know how to cope, here are a few suggestions.

- Negotiate with your bank to try lowering your interest rate. If it's a credit card loan that's bothering you, convert it into a personal loan. Interest rates will definitely be lower than the credit card interest rate.

- Calculate your net worth and see if any of your investments could help you prepay a part of your loans.

- Make a contingency plan for the immediate future. Talk to your bank along with your debt counsellors. Explain your situation and see if you can resume your loan at a later date, but do make an effort to prepay some amount.

- In case you are suffering from a lay off, and if you're in a double-income household, see if your spouse can support you in the short term before you land a job.

- Manage your current finances judiciously to battle through the current situation and emerge wiser.