DEBT COUNSELLING: AN INSIGHT- II

(…cont.)HOW DEBT COUNSELLING WORKS?

Debt counselors assess your requirements and financial status in totality and brief you about the cost involved. The next stage is to jot down the sources of income and outflows like installments of loans, intrest, insurance premiums etc. This centre helps you to restructure the outflows so that you live a debt free life. Banks are ready for settlement of loans as they want to avoid loans from becoming NPA’s. These services are free of cost.

TIPS TO GET OUT OF DEBT

  1. Firstly you should inform your spouse and parents about your debts.
  2. Keep minimum no. of credit cards. Give preference in repayments to those whose intrest rates & principal amounts are high and then other debts.
  3. Go for One Time Settlement (OTS) if the bank allows the defaulter to settle all dues in one time.
  4. If OTS is not possible restructure your loans, premiums. Draft a letter to bank stating your inability to pay EMI and asking for restructure.
  5. Transfer your debt from one financial institution to another which offers you low intrest rates and flexible payment options.
  6. In the worst case, if you have lost all money and do not have any source of income then file a petition in the court for insolvency. The court will take over all the assets and pay all your debts in pro-rata basis.

DEBT COUNSELLING CENTRES IN INDIA

There are various banks and financial institutions which runs debt counselling centers as a part of their ‘Corporate Social Responsibility’. Where as for customers it’s a ‘Goodwill Gesture’. The banks which provide these services in India are:

· Bank of India’s Abhay (http://www.bankofindia.com/abhay.aspx)

· ICICI Bank’s Disha Financial Counselling (http://dishafc.org)

· This site is an initiative of the Indian Banks’ Association, India Cards Council and MasterCard which offers free financial education (is http://money4you.in).

· Bank of Baroda’s (http://www.bankofbaroda.com/bgpk.asp) and many more banks.

CONCLUSION

It has been rightly said that ‘Money is the root cause of all evils’. Most of the people allow the power of money to control them. Most of the people have misconception that money solves all the problems. But in fact it accelerates the problems. If we ask people why we need money? The most common answers we find that they want to get rich or ‘I’m in debt so I need money’. Debt counselling centers helps you to have a sound sleep

DEBT COUNSELLING: AN INSIGHT- I

The recent collapse of the major financial institutions & banks, sub-prime crisis had brought the ‘Debt Counselling’ in to lime light. The bankruptcy of the Bear Stearns, AIG, and Washington Mutual are the examples of the excessive credits given to the people. As a result most of the banks & financial institutions have started Debt counselling. Debt counselling is also known as ‘Credit counselling’. Debt counselling is a win- win situation for the banks as well as for its customers.

GLOBAL SCENARIO

There is variety of ways in which debt counselling has been accomplished in different countries. The first debt (credit) counselling agency was created in 1951 in US known as National Foundation for Credit Counselling (NFCC). In US, The Bankruptcy Abuse Prevention and Consumer Protection Act 2005 have made credit counselling a requirement for consumer debtors filling for bankruptcy. The debtor must complete a program within an approved non profit budget and credit counselling agency during 180 days preceding the date of filling for bankruptcy.

INDIAN SCENARIO

Globalization and financial innovation has phenomenally increased retail lending in the commercial banking sector. In recent times consumer loans, housing loans, credit cards & personal loans have registered a tremendous growth. The credit growth in these sectors grew at a Compound Annualised Growth Rate (CAGR) of 43.3% during 2001-06 as compared to overall growth of credit of 23.4% in the same period. Costly medical emergencies, retrenchment from jobs, increased intrest rates have raised debt burdens in some cases. The aggressive marketing of personal loans and credit cards to venerable sections of borrowers leads to over indebt ness and rising NPA’s (Non Performing Assets).

DEFENITION

Debt counselling can e defined as ‘counselling that explores the possibility of repaying debts outside bankruptcy and educates the debtor about the credit, budgeting and financial management’.

OBJECITVES

The debt counselling serves various purposes. They are:

1. (a) It examines the ways to solve current financial problems.

(b) It helps educating people about the cost of misusing the credit.

(c) Benefits and encourages poor and distress people to access the formal financial systems.

2 The objective was to promote financial literacy and help consumers to avoid bankruptcy.

3 It helps proactively to manage their debt via out-of- court procedures based on agreed repayment plans between creditors and the debtors.(…cont.)

MONEY MATTERS!

In the globalised and fast moving world everyone is busy in fulfilling their greed of earning more money. Most of the people often allow the power of money to control them. The people starts getting up earlier in the morning and working harder, but they fail to understand that ‘Money is the root cause of all evils’. There is the financial cycle which goes on and on. Every one faces it right from childhood till death. As we grow up we go to school, college, and get attached with a company or start our own business. With our growing age our thirst for money also grows up and we are now trapped in Rat Race for rest of the working days. They work for the owners of their company, for the government paying taxes, and for the bank to pay off bills and mortgage. More money does not solve the problem; in fact, it may actually accelerate the problem. Money often gets you in debts instead of helping you to get out of debts. Money often puts a spotlight on what we do not know.

It has found that with the age group of 20- 35 most of the people like to hang out in pubs, purchasing branded garments, cars, house, going for weekends with your loved one and many more. To fulfill that they work hard earn a lofty amount and spend it like anything.

The people purchases more than that of their paying capacity. Easier credit cards and loan facilities from financial institutions encourage the people. When we ask people why they need money? The most common answers we find that they want to get rich or ‘I m in debt so I need to make more money.’

The recent sub prime crisis and bankruptcy of major banks and financial institutions like Bear Stearns, Lehman, AIG, and Washington Mutual are the examples of excessive credits given to the people. To avoid these problems most of the financial institutions have started Debt Counseling for its customers as a ‘goodwill gesture’.

Debt Counseling is one of way to pay off your bills and to get out of debt. “It is a corporate social responsibility initiative.” Debt counseling centers offer advice for all categories of credit—credit cards, personal loans, home loans, and so on. Their services are creditor-neutral, that is, they help you out no matter what institution you borrowed from.

HOW DEBT COUNSELLING WORKS?

Debt counsellors make a holistic assessment of your situation, and give you an appraisal of the costs involved—interest rates, fees, all the fine print. For instance, credit cards are the most expensive kind of debt, with annual interest rates of 42% to 49.36%. When you add the charges, they work out to more than 50%. The next step is to list payments that you, the borrower, can make—dues, equated monthly installments, and so on. The centre can help you request creditors to restructure loans. So, for instance, you may end up with a longer repayment schedule but more affordable EMIs. For example a negotiated repayment at 8% simple interest over 36 months. “It’s a win-win situation for banks and customers.” Banks avert a messy recovery process, and get at least the principal back. And borrowers get help paying off dues. All of this, though, applies only if a bank is convinced the borrower is truly willing to pay off bills, and genuinely cannot stick to the original schedule. It (the initiative) has been able to discern people facing genuine difficulties from intentional defaulters.

BEST STRATEGY

Don’t pay the minimum due on your credit card; pay the full amount each month. Don’t take an expensive loan to pay off a previous loan. If you have more than one loan, pay off the most expensive one first. So it makes sense to pay off credit cards, then personal loans, then lower-interest debts. If you must borrow, do so against a security such as property or shares. Such loans (14% to 16% interest) are cheaper personal loans (19% to 21%). And lastly, if you can borrow from helpful relatives to pay off your debt, do so!