Why quick loan is not a solution
Do you often wake up in the middle of the night with goosebumps because of money problems? Is anxiety eating you up from the inside because you’re falling behind on your loan payments? This is financial stress and it can go from wreaking havoc on your wallet to ruining your health, if you’re not careful.
The stress can trigger long-term diseases and hit your budget even more. As with any problem, the first step is to know the enemy, so you can fight it. What is causing you to take that quick loan?
Expenses are greater than income:
You spend more than what you are earning. You’re using your credit or taking quick loans for trivial things. It’s a spending habit that turns into an addiction.
Living from salary to salary:
You count the days by 30s, hoping you’ll make it to the next. Quick loans seem just the solution, until reality hits you.
The feeling of being indebted can be terrible. You may even feel shame or disgrace that often destroys relationships between friends and family members. A quick loan to tide over that feeling is the solution.
Debt: Lack of financial plan:
You feel you’ve lost control of your finances because, to start with, you don’t have a goal or financial anchor. You sit there in your dinghy that floats aimlessly in the middle of an ocean of spending. The only answer seems to be that quick loan.
To give you a sense, we spoke to three individuals who took quick loan. Yamini Goyal, 25, a fashion designer, regularly took quick loans from her retired father to get over her cash crunches. She checked his account one day to realise that he had been redeeming his retirement plans to fund her purchases. She vowed never to indulge in quick loans and to manage her cash flow better. Another example is Suraj Khanna, 28, an event management, who has a weakness for clubbing and branded clothing. He indulged in these habits by charging one of his credit cards to the maximum and eventually transferring his dues from one credit card to another. The second bank allowed a credit-free period of up to 90 days for easier repayment of his pending amount. Once the credit period ended, regular interest was levied on him and his panic re-started. Similarly, Fauzan Sheikh, 23, a store manager in a popular coffee café chain, has a penchant for purchasing electronics. He borrows from his friends regularly and pays off one loan by borrowing from another friend. They eventually discovered his habit and started to avoid him. He lost out big time on his relationship with peers and co-workers too.
If you are in a situation similar to Goyal, Khanna and Sheikh, here is what you should do:
Firstly, talk to your banker and request to convert the outstanding amount into monthly EMIS. Banks, however, charge a monthly interest of 2%-3% for allowing the EMI facility. There will also be a processing fee, which will be around 1%-2% of the outstanding amount. The best way to manage cards is take maximum advantage of the holiday period. Depending on the bill cycle and date of purchase, one can enjoy up to 50 days of interest-free period on a credit card. So make planned buys on cards to enjoy maximum holiday period and to avoid interest payment.
When you have debts on more than one card, clear the debt on the card that charges higher interest rate first. This way, you can reduce the total interest outgo, as unpaid dues with higher interest rates accumulate interest faster.
Curb the instinct to spend without checking the bank balance and give up charging a credit card for frivolous expenses for three months. Don’t burden immediate family or friends with incessant money worries.
Take charge of your cash flow. Unfortunately, quick loans are only a way of postponing your original debt payment and can have disastrous compounding of interest problems if you fall into the debt trap. An analysis of the causes of your ‘quick loan’ should be your first step towards getting out of this habit.
Nisreen Mamaji is certified financial planner and founder, Moneyworks Financial Advisors