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I'm 30, married, and have a 1.5-year-old daughter. My monthly on-hand income is 71,000 ₹ (INR). These are my monthly expenses:

  • Home loan: 18,428 (Loan amount: 18,50,000. Number of EMI pending: 150. Tenor: 161 months, ROI: 7.4%)
  • Home topup loan: 5,956 (Loan amount: 4,50,000. Number of EMI pending: 169. Tenor: 180 months; ROI: 9.7%)
  • Term plan: 1421 (Tenor: 30 years and covered until I turn 78)
  • LIC: 4,000 (two different policies, one up to 18 years and another for 24 years)
  • Mediclaim (health insurance): 1,000 (12,000 yearly family floater)
  • Mutual fund: 1,000 * 2 = 2,000 (two different monthly mutual funds automatically debited from account)
  • Credit card 1: Minimum payment: 10,000 (total pending: 1,09,000, interest per month: 3.4%, card limit:1,30,000).
  • Credit card 2: Minimum payment: 5,000 (total pending: 44,508, card limit: 75,000)
  • Credit card 3: Minimum payment: 5,000 (total pending: 33,880, card limit:75,000)
  • Credit card 4: Minimum payment: 5,000 (total pending: 22,460. Interest per month: 3.35%, card limit: 75,000)

So my total expenses are around 57,805. I am not including other expenses like food, electricity, etc. So later in the month, I use credit cards as I have almost used up my salary for the month, and I spend an extra ~10,000 using credit cards.

I have checked the interest of all credit cards and it seems to be around 7,700 ₹.

I do know that I have to control my credit card expenses. But I am at a point where I have to use credit cards to keep things running. So what should I do to break this cycle? I can provide more details if needed.

At this moment I am not even sure how I should break this cycle: Salary → pay credit card bills → out of salary → use credit card.

Additional Details: wife can't work as she takes care of my daughter. Other family member are leaving on different place.

JohnFx
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private
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    why are you paying 2000 per month to a mutual fund when you have a credit card emergency? – user253751 Nov 11 '20 at 15:16
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    What exactly are "Term Plan", "LIC" and "Mutual Fund"? – Philipp Nov 11 '20 at 16:19
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    Also what is "Mediclaim"? – DJClayworth Nov 11 '20 at 16:44
  • Term plan is insurance which will pay lumpsum money to nominee in case of my death (naturally or accidenttal or suicide). LIC provide insurance in which i pay money regularly and they return it with interest after X year. – private Nov 11 '20 at 17:05
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    https://en.m.wikipedia.org/wiki/Term_life_insurance is term plan – private Nov 11 '20 at 17:07
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    https://en.m.wikipedia.org/wiki/Life_Insurance_Corporation LIC provide various way to invest money.i am doing that for my daughter. It will return approx 4 lac after 18 year for monthly invest of 1000. It will return approx 25 lac after 25 year for monthly invest of 3000. – private Nov 11 '20 at 17:11
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    https://en.m.wikipedia.org/wiki/Mutual_fund mutual fund – private Nov 11 '20 at 17:12
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    Mediclaim is health insurance. – private Nov 11 '20 at 17:14
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    What are your credit card rates? – JimmyJames Nov 11 '20 at 18:38
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    What happens if you stop paying LIC? Do you lose your investment? – JimmyJames Nov 11 '20 at 18:43
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    @JimmyJames no the amount which I paid will be returned after some time. – private Nov 12 '20 at 03:43
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    3.4% a month is a really high rate, nearly 50% over the year. You should definitely seek more reasonable terms. – JimmyJames Nov 12 '20 at 14:58
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    "I am not including other expenses like food, electricity, etc." Step 1 - Include those figures. If you don't know the numbers, start making it a habit to know those numbers. – Zibbobz Nov 12 '20 at 15:38
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    Dear potential editors, the number separators do not need to be "fixed". Refer to Indian numbering system. – Flux Nov 12 '20 at 17:15
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    Please remember comments are just for clarifying questions, not answering the question. – GS - Apologise to Monica Nov 12 '20 at 18:36
  • There's several good answers on this, and I wrote an extensive Answer on another Q, so I won't add another Answer here, but here's the link. https://money.stackexchange.com/questions/102603/paying-off-debt-and-living-within-means-vs-long-term-planning/102615#102615 It references a book called "America's Cheapest Family", and even though you are in India, there's still plenty of things you can get from the book and find similar stores and deals the book talks about to spend less. – computercarguy Nov 12 '20 at 18:38
  • Knowing where you live can be relevant. Does "Rs" refer to RON, RUB, RWF or some other currency? – chasly - supports Monica Nov 13 '20 at 15:38
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    @chasly-supportsMonica The question is tagged as India and Rs stands for Indian Rupees. – JimmyJames Nov 13 '20 at 16:12
  • @Flux Thanks for that link, reading the question really confused me. – Aubreal Nov 13 '20 at 17:17
  • To be more specific: "The Indian numbering system uses separators differently from the international norm. Instead of grouping digits by threes as in the international system, the Indian numbering system groups the rightmost three digits together (until the hundreds place), and thereafter groups by *sets of two digits.* ". But why would we not change it to something that most of the international audience will understand? Most readers will probably think there is an error (1,09,000 → 109,000). – Peter Mortensen Nov 13 '20 at 19:32
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    One could argue the OP ought to be considerate of the international audience. – Peter Mortensen Nov 13 '20 at 19:32
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    One could argue you ought to be considerate of the author when they write perfectly comprehensible things that happen to be mostly commonplace in cultures other than your own, and stop nitpicking to make yourself feel good. If some reader thinks there's an error, this is a great opportunity for them to avail themselves of the vast resource of the internet and correct that misapprehension. It's a learning opportunity. – Asteroids With Wings Nov 13 '20 at 19:57
  • I observe idly that India is a participating member country of the ISO technical committee that decides the international norm on grouping of digits in decimal numbers, and that the relevant international standard (ISO 80000-1) is currently under review. – Daniel Hatton Nov 13 '20 at 21:15
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    @PeterMortensen Good luck with editing hundreds of questions tagged [tag:india]. Good luck with editing all the continental European questions that use "wrong" number separators. – Flux Nov 14 '20 at 00:35
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    I'll comment on LIC (policy), purely from insurance / investment standpoint in India. Somewhere, I feel that you own one of their Jeevan-X policies. Most people who haven't looked at financial instruments and their intricacies closely tend to think of such policies as "great" products, as they offer insurance and money-back both. However, their cover is almost negligible as compared to a term plan, and if you compute YoY returns on investments, that'd barely be 3.5%. Hence, I'd strongly suggest not mixing up insurance and investment in the same product, particularly at your age. Let go of LIC. – Dhruv Saxena Nov 14 '20 at 12:07
  • @DhruvSaxena Yes I have two jeeven anand policy. You are right there insurance is about 7.5 lac in case of death. But return is about 25 lac for one policy and for other one it's 4 lac. That's why I have separate term plan of 1 crore. The reason I have term plan is: I have seen my close one died on age of 50 neither have term plan, Mediclaim. That leaves family on very bad situation. – private Nov 14 '20 at 12:34
  • Term plan of 10m(1 cr) I'd be all in for, provided you aren't paying much higher than the avg market price. Agents of companies with inexplicably high premium rates often cite "claim settlement ratio" to justify their products. Unfortunately, it's a faulty parameter to judge the value, as it doesn't tell you the amount or the type of policy that the claim was settled against. Educate your family about the products you own and the processes to follow, as you anyway don't buy term plans for you to be around. – Dhruv Saxena Nov 14 '20 at 13:56
  • As for your investment in LIC... Annual premium: 48000/-; Total premium: 1008000 (I took the avg duration of investment as 21 years); Total returns 2900000; Earnings: 1892000; ROI (annualised): a meager 5.16%. In a country like India where inflation is thought to hover around 7%, you're actually making a loss. – Dhruv Saxena Nov 14 '20 at 13:58
  • Then what are my options for investment? – private Nov 14 '20 at 14:20
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    Do not worry about investing just yet. Ideally, it starts with investing first, then spending. At this point though, you'll first have to get your income vs expenses sorted out. Once you start seeing some spare monthly income, make sure you invest it. Thereafter, don't take additional debt until your income minus investment allows you to. Only you can determine the "right product", based on your goals, risk appetite and time horizon for investment. I personally prefer long term equity mutual funds, though ymmv. Read / learn more about the usage, pros and cons of various financial instruments. – Dhruv Saxena Nov 14 '20 at 15:50

12 Answers12

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Your expenses are currently higher than your income! This is your priority #1! I cannot stress enough that if you take on new debt in order to make payments on old debt, that is often the last stage before financial breakdown.

This is a serious problem, even without your current level of debt. But you have not given us your monthly expenses. I suspect this is because you do not currently have a budget. Once you solve your budgeting problem, only then can you start to address your current debt problem. Otherwise, you will have the same debt problem next year, and the year after.

In order to maintain this level of expense at this level of income, you have fallen into a trap of borrowing (on long term debt, as well as outrageous short term debt). You seem to mention credit card rates with their monthly interest rates, but if you called them by their annual rates of >50%, it would likely make your skin crawl. If your credit card has an annual rate of 50%, and you fail to pay off the card for two years [it looks like you are currently not paying off your cards for many years], whatever you buy on it actually costs more than double what you think it does.

You have a few options to consider, and may need to perform many changes combined, in order to get more success:

(1) Track 100% of everything you spent last month, whether in cash, or by card, or bank payment. If you do not have a budget and do not review your credit cards in detail, you may be shocked even at this stage to realize how much you spend on, for example, clothes and entertainment. This information will form the basis of preparing a monthly budget.

(2) Prepare a monthly budget, just for 1 month at first. This will be difficult, and there will be a lot of learning and growth before you are able to be confident and successful in this, but you honestly must start, the sooner the better. There are more in-depth guides on budgeting available (google "You Need A Budget" for a popular method), but the basics would be: consider every category of spending (rent, car, entertainment, clothes, food, utilities, gifts, interest payments, principal debt payments, savings), and allocate your income to each of these catagories. Your budget cannot be higher than your income! If you absolutely cannot make the budget 'work' (expenses higher than income), you need to start considering more drastic measures (see further work below).

Part of setting a monthly budget will be to take into consideration your current and future financial goals. When do you want to be debt free? Do you need to save for education for yourself or a family member? Have you thought about how you might be able to retire in the future? These are deep questions that may be scary for you today, and perhaps you can put off these questions for a month or two while you get the rest of your budget in order, but in the near future you must ask yourself honestly about these things.

Off the top of my head, without knowing anything except what you have provided, the following seem like areas of improvement to reduce your monthly expenses:

  • You are saving money each month in mutual funds (do you have any savings already you could cash out?), earning probably 10% each year or less, while you have outstanding credit card debt that seems to have annual rates of 50% each year or higher!!! which is better, save 1000 to earn 100 Rs, or pay off 1000 of debt to save 500 Rs?

  • You seem to have two different life insurance policies costing you about 5000 Rs a month. Again, if you used these funds to pay off your credit cards, it would save you about 2500 in interest over the course of a year. Cancelling these policies may be difficult, and depending on your age, it may be more expensive to restart these plans in a few years when you pay off your debt and take on a new insurance plan. So it may be a painful decision to cut these, but as it stands it might be necessary. Hard to know before you prepare and follow a budget to see what else can be cut.

  • A general rule of thumb is that housing costs should not exceed 1/3 of your income. Whether this is possible or preferable will depend on your location. In some places, housing can cost less than this, in some places it must cost more. Depending on your income level, you may be able to live more modestly than 1/3 of your income, etc.. However using this rule of thumb, we can see that you pay about 1/3 of your income on mortgage and home debt alone. Add in utility costs, property taxes, and home repairs, and I expect this number comes closer to 50% of your monthly income. That is a red flag. **So the question here is: can you lower your housing costs, by moving, or taking on a roommate, or something else? You are in an extreme situation here, and perhaps you need to even sell your house and rent until you are more stable.

  • Is earning more income possible, either with a side job, or having someone else in your household also work?

  • As for your other expenses, you have given no indication of what they are, but I expect they are probably higher than you might tell yourself. There is no way to know this until you go into your last month of spending in detail, and create a budget and try to stick to it.

(3) Stick to your budget! Every month, you must total up all of your expenses, compare them to how much you budgeted, and determine where you did better or worse than you planned. Yes, every month! Every week even at first could be very informative! This will take time, practice, and commitment. Do not throw it away if you fail month 1, use that as an opportunity to learn.

(4) Create a long term payment plan for all of your outstanding debt. This includes a calculation of how long it would take you to pay off your debt at your planned repayment levels. Since you mostly listed just minimum payments on your debt, I expect that this is how much you are currently paying. I haven't done the math, but most often it takes 10-20 years to pay off credit card debt by making minimum payments, which would mean that everything you are currently buying could have a true price tag of 5-10x what it costs initially. You must aggressively pay down your credit card debt. You must commit to not take on more credit card debt.

(5) Look into consolidating your high-rate credit card debt into a loan with a lower interest rate. Given that you have a second loan against your home, you may have tried to do this in the past, but possibly without also minimizing your expenses at the same time. This is why I said you must set your budget first - without discipline, you will be back in the same place very quickly.

(6) Reach out to those you care about and those who care about you. Now is the time to ask for help. Perhaps you will be able to lean on the satisfaction of self-improvement to motivate you, but you will also need support from those around you. Do not hide your financial situation from your friends and family. If others do not know you are struggling, you may feel more alone, and they may even become part of the problem (pressuring you to spend lavishly on meals, etc.). Whatever support network you can surround yourself with, could become life-saving.

(7) Sell anything you have of value that you do not need. Everything from a car if public transportation is possible, to extra clothing you don't wear, to old videos and entertainment systems and appliances. This will give you a little initial cash to pay down debt further, but also will be part of committing yourself to not continuing to spend new money in these areas. Leave yourself what you need to survive and function, but you will need to make some sacrifices (don't lie to yourself about what you need - if a TV that you could sell for $50 is your only entertainment, don't sell it so that you end up feeling the need to buy a new one for $150 next month). Now would be a good time to consider 100% free entertainment options (outdoor exercise, even simply walking every day, may significantly help your mental and physical well-being, especially if you work indoors all day at an office-type job.

(8) Consider liquidating any savings you have, perhaps even in tax-deferred accounts. I am not familiar with what penalties there may be for doing this in India, and this is usually not recommended, but you are in extreme circumstances, so learn about the options and what they would mean for you.

(9) Avoid excess as much as possible. This means not eating out, not providing assistance to others you can't afford (I don't mean you cannot give anyone a gift, but if you have fallen into the trap of paying for entertainment expenses on credit cards, you may also feel socially pressured to pay for things for others, and now is the time for sacrifice; if you spend yourself into a hole today you cannot help anyone tomorrow).

(10) Ultimately, one option that may make sense for you is to declare bankruptcy. I am not sure of the rules for this in India, but you must do the research to understand what this would mean for you. If this option intimidates you, use the analysis as motivation to pay off your debt instead, but don't avoid learning about it now. If you continue to pay down debt with new debt, you will end up here soon enough, so it would be better to understand what that would mean, and avoid it if at all possible.

You have a long road of learning and discipline ahead of you if you want to get out of your financial position. It will be difficult, especially at first. This does not mean there is no hope. Have hope, faith, reach out to your social network to support you in whatever way is possible.

I wish you the best of luck.

winny
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Grade 'Eh' Bacon
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    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.) – Fattie Nov 11 '20 at 22:57
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    @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! – Grade 'Eh' Bacon Nov 12 '20 at 01:56
  • 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. – private Nov 12 '20 at 03:46
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    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. – Nelson Nov 12 '20 at 07:40
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    @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. – NotThatGuy Nov 12 '20 at 09:40
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    @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. – Michael Nov 12 '20 at 10:10
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    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 – private Nov 12 '20 at 11:35
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    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. – JimmyJames Nov 12 '20 at 14:48
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    @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]. – Grade 'Eh' Bacon Nov 12 '20 at 15:30
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    @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: https://www.daveramsey.com/blog/the-truth-about-budgeting – Grade 'Eh' Bacon Nov 12 '20 at 15:31
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    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. – private Nov 12 '20 at 16:28
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    @NotThatGuy"especially if this involves the additional stress of taking a second job" IIRC that's not even legal in India. – nick012000 Nov 13 '20 at 01:22
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    @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 https://money.stackexchange.com/q/102/71414 and on https://www.reddit.com/r/personalfinance/ . – Brian Nov 13 '20 at 14:55
  • Thanks for the link.@brian – private Nov 13 '20 at 15:36
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    @nick012000 Really? working for two jobs is illegal in India? – user253751 Nov 13 '20 at 15:53
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    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. – cbeleites unhappy with SX Nov 13 '20 at 16:05
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    '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. – Daniel Hatton Nov 13 '20 at 16:08
  • @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?* – Grade 'Eh' Bacon Nov 13 '20 at 16:58
  • @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. – Daniel Hatton Nov 13 '20 at 17:13
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    @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. – Grade 'Eh' Bacon Nov 13 '20 at 17:35
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    @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. – Daniel Hatton Nov 13 '20 at 17:39
  • 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.) – Daniel Hatton Nov 13 '20 at 17:44
  • 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! – Fattie Nov 13 '20 at 18:58
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    @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. – nick012000 Nov 13 '20 at 21:12
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    @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. – private Nov 14 '20 at 03:28
  • @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)... – Daniel Hatton Nov 14 '20 at 11:46
  • ... 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.)... – Daniel Hatton Nov 14 '20 at 11:56
  • ... 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. – Daniel Hatton Nov 14 '20 at 12:03
  • But I definitely have to stop the expense which is greater then income otherwise I will be soon in much bigger problem. – private Nov 14 '20 at 13:25
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    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. – private Nov 14 '20 at 13:31
  • I asked the question because my finances/budget management was out of control and didn't know what to do. – private Nov 14 '20 at 13:35
  • 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. – private Nov 14 '20 at 13:47
  • @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. – Daniel Hatton Nov 14 '20 at 22:46
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    @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! – Grade 'Eh' Bacon Nov 16 '20 at 13:54
  • 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. – private Nov 17 '20 at 06:07
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    @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. – Grade 'Eh' Bacon Nov 17 '20 at 14:11
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Your situation looks like you are in deep s**t. You have to be absolutely brutal to get out of this, or you will drown in debt. I suggest:

  1. Find any way possible to make more money. Overtime, weekends, see if your wife can find a job.

  2. Do not spend a penny unless you really have to spend it. Find which store sells the cheapest food, and find which food is cheaper. No new clothes, no holidays. No presents for anyone. No restaurants. You are drowning right now.

  3. Make the highest possible payments to repay your credit cards, with the highest interest rate first. That debt must go. Stop paying into savings and pay that money off your credit card debt.

  4. Cut up your credit cards so you are not tempted to spend more on them.

  5. Go to your bank and see if you can find a cheaper loan that you use to pay off your credit cards. I wouldn't put my hopes up too high.

Having four credit cards is asking for trouble. They get you more and more into debt. (1) to (5) are tough. If you don't do that, that will be a lot lot tougher.

I notice that your credit cards charge 3.4% interest per month. That is an absolute killer. That is 49% per year. Do whatever you can to pay that money back. Get a loan from friends, family, or whoever isn’t a loan shark. Try getting a bank loan. Get a credit card with 20% interest per year if you have to to pay these cards back. Almost anything is better than 49% per year. What on earth made you sign up to these cards? Did you think 3.4% is cheap? If you were my son and that stupid, I’d pay the credit cards back and remove you from my will.

gnasher729
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    All good advice, but budgeting needs to be above all of them. It's not use working all hours if your income is still less than your expenses, and you don't know that without a budget. – thelem Nov 12 '20 at 21:33
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    I use the brute force method of not spending anything that isn’t absolutely needed. – gnasher729 Nov 13 '20 at 01:20
  • I only just noticed the 49% credit cards. At that point a budget doesn’t help. The only thing that helps is paying off these credit cards. – gnasher729 Nov 13 '20 at 01:32
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    You do a budget to identify that those cards are your priority, and to check that your solution is going to work. That applies whether your solution is extra income, reduced expenditure or a combination of both. – thelem Nov 13 '20 at 12:46
  • @gnasher729 A classic (but much maligned) example of how having a budget and tracking expenses can help, is that someone who does not yet have financial discipline may be spending far more than they think on things like daily coffee runs, "avocado toast", or cash withdrawals for incidentals. If you have a habit of tapping your card everywhere you go, and never open your monthly statement, you might not realize that "just a couple of bucks" ($2.99 + tax) for a coffee every workday costs you about $100/ month. A budget is a tool to highlight awareness of spending, in addition to planning limits. – Grade 'Eh' Bacon Nov 13 '20 at 14:13
  • I love the advice to cut up your credit cards. That should do the trick. – Peter - Reinstate Monica Nov 13 '20 at 15:02
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    'Find which store sells the cheapest food, find which food is cheaper' This is potentially very dangerous advice. Maintaining a healthy diet for oneself and one's family really has to be a higher priority than rapidly paying down the principal on one's credit cards, and while a healthy diet doesn't necessarily have to be an expensive diet, the cheapest food in the cheapest store is very unlikely to constitute a healthy diet. (Even from a mercenary point of view, poor diet can impair cognitive function, adversely affecting one's performance at work and reducing income potential.) – Daniel Hatton Nov 13 '20 at 16:34
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    Disagree with "cut up your credit cards". What if an emergency happens and you have a good reason to use one? One trick I've heard is: put them in a bowl of water, and put the water in the freezer. Then you can still get them if you really really need to. – user253751 Nov 13 '20 at 16:38
  • A card is probably sufficient for emergency use. Any emergency that requires more than what can fit on a single card is probably one where you can discuss a payment plan, rather than paying up front on multiple cards and having to pay those off over time. – chepner May 19 '22 at 16:10
18

I do know that I have to control my credit cards expense. But I am at a point where I have to use credit cards to keep things running.

Getting more income, as another answer suggests might help, as would focusing on reducing debt. But from a cursory glance at your figures, I would suggest you perhaps need to look in more detail at your "other expenses", and perhaps your housing costs.

The expenses you list total 57,805 Rs, out of 71,000 Rs on-hand income (which, I assume, is after taxes and any other deductions). This leaves 13,195 Rs per month for "other expanse like food, electricity etc." and whatever "lifestyle" expenses you may have.

According to Cost of Living [in India] from Passport to Trade 2.0's website:

Basic need living costs such as food, water and shelter costs you around 15,000 to 20,000 INR.

and:

The room rent in the best areas varies from INR 7,000 to 15,000 per month.

By my calculations1, this equates to roughly 6,500 Rs per month for basic living costs, excluding shelter.

The remainder of your salary (13,195) is pretty-much twice this figure. However, you also say you spend "around extra 10,000 on credit cards", implying you are spending around 24,000/month on things not itemised above, or slightly over 3½ times the above site's estimate for basic living expenses.

I accept that that site's figures may be more of a bare minimum, and that "reasonable living expenses" may well be higher; however, it does appear – at first glance – that you are perhaps spending excessively. It would also appear that your housing costs (around 24,000/month for the two home loans) are quite a lot higher than that site says are typical (at lest for rented accommodation).

Taken together, you need to take a careful look at any "discretionary" spending. Tightly controlling this, while you concentrate on reducing your credit-card balances would seem to be top priority. As thelawnet's answer suggests, you might also consider suspending your savings plans "for the duration", depending on the consequences of doing so. You perhaps should also take a long, hard look at whether you can really afford your current home at 24,000/month for mortgage payments. If you cannot make inroads into you debt through other means, you may have to consider downsizing or renting.

1 As both figures are given as ranges, you can get a number of "differences" depending on which figure you take from the other. The difference in the bottom end of each range (15k and 7k) is 8,000/month; the difference at the top end (20k and 15k) is just 5,000/month. I've gone with the difference of the averages (17.5k and 11k) to get 6,500/month.

TripeHound
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    FYI It's incredibly hard to roughly guess living costs in India. There is a tremendous number of 'simultaneous' systems going on. As you know Mumbai has almost eclipsed even Dubai for Glamour Zillion Dollar Apartment Ultraskyscrapers, but there are other streams of costs side-by-side. It's very tricky :O – Fattie Nov 11 '20 at 19:00
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This is going to take hard and drastic action.

Until your debt is under control you simple can not afford LIC at there current levels nor your mutual fund.

Your going to have to cut those to 1/10th of there current levels.

No investment is going to pay you enough interest to counter act your current debt.

Great you have a LIC with 100,000 or whatever in 24 years, but then you have 2,000,000 in debt complete waste of money.

You may need to consult a financial advisor regarding any possible penalties or fees. However, your mutual funds will do no good if the debt that gets added to you is more than the future value.

I would completely empty the mutual funds to pay off your debt, and then once everything is paid off you can save 2x the money to make up for the ground you lost.

If you can even pay off 1 CC via mutual funds that's an extra 5000 to pay off the other 3.

Your only other course of action is bankruptcy, and then the court will force you to live within strict budget requirements.

cybernard
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Credit card debt is supposed to be very short-term, which is why it has horrendous interest rates. So priority 1 should be to look for a way to refinance your credit card debt.

Refinancing means to get a loan to pay off a loan, but do so by getting a better loan. One with a lower interest rate and which has a lower minimum monthly payment.

The first place to go to would be your bank. See if you can get a loan to pay off all your outstanding credit card balances and has a repayment plan which is easier to handle. But you might also look into other sources for a loan (friends, family, employer...)

When you can not get a loan, then you might try to negotiate with the credit card companies directly. When a customer struggles financially and is on the verge of declaring personal bankruptcy, then they might agree to a less strict repayment plan in order to recover at least part of the expected money. There is no guarantee that they agree to that, but it's not unheard of. So you can at least give it a try.

When the credit card companies won't budge either, see if there are any of the other fixcosts you can afford to not pay for a while in order to get your credit card debt down. Look into the contracts and find out how many consecutive down payments you can afford to miss before you encounter any serious consequences.

If that fails too, then you might have to downsize your home. Sell it, pay off your credit card debt, and use the remaining money to buy a less expensive home... or rent one.

Philipp
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    Please don't use/suggest "friends, family" as loan source... Chances that it will work out are low at best... – Alexei Levenkov Nov 11 '20 at 19:56
  • @AlexeiLevenkov - it will work out fine for the person getting the money :) – Fattie Nov 11 '20 at 20:57
  • Accepting a loan from an employer could lead to ending the employment arrangement. Friends/Family is worth mentioning, but probably has already been tried at this point, if applicable. – jpaugh Nov 11 '20 at 21:54
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    @jpaugh That's a cultural thing. There are parts in the world where your employer is the first person you go to when you need a loan. – Philipp Dec 10 '20 at 14:58
  • @Philipp As far as I can tell, it's culturally acceptable where I'm from. I'm saying it's a bad move to put so many eggs in one basket --- not merely a stigma. If you fail to make payments on the loan, then your boss can easily dock your pay. And, what happens if you get fired before the loan is paid off? – jpaugh Dec 10 '20 at 19:46
  • @jpaugh When you get fired, then your ex-boss has a much harder time to get their money back. So I would think it would rather improve your job security. – Philipp Dec 10 '20 at 19:54
  • @Philipp ...At the expense of your work relationships, which means you need to search for a new job, but you can't because you can't pay off the loan all at once, because you're already behind on payments. You're basically using your job as collateral. It's one of the worst kinds of loans imaginable. – jpaugh Dec 10 '20 at 19:58
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You have 71000 coming in and your regular payments total 55805. This means that your family must spend less than 15195 per month or you go deeper into debt.

The only way out is to stop spending money. Eat plain rice and chilli, go to work, do free activities for recreation.

Once you have gone a month when you spend less than 15195 you can start paying down the debt. Pick the card with the smallest balance first and pay off as much as you can. Once your debt is gone your family can live on 40,195 per month.

You don't mention your wife in this. It's essential that you get her to cut her spending too.

UEFI
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There are two ways to have a green bottom line at the end of the month: decrease expenses or increase the income. As a general rule I use, the difference between the income and the expenses must increase on any given year.

I live in Bucharest, Romania and started working nearly 20 years ago (2001) for 100$ per month as a full time IT guy. A few months later I had 2 additional IT gigs earning me another 100$ per month (but no free weekends for 30 weeks per year). By 2005 I was making about 600$ per month as a Junior Java Developer + the two IT gigs with an additional 150$ per month - and got married.

After a few years I started to invest the little money I had, just before the 2007-2009 crash. Lost some money, acquired great experience. I learned then to be a little patient before buying things, even if you have the money. My wife stood by me even if we had the advance to buy a house with credit - so we bought one after the crash at half the price. Fast forward to right now, I am well enough to give free advice.

Long story short: you and your family are your most valuable assets. You should grow your income in the main direction you want in life, but there are limits on how much effort you can deliver. Your family must participate in this effort.

And here are some rules of thumb I use:

  1. Pay yourself first, aka always have some money left in your pocket at the end of the month.
  2. Don't "invest" while you have debt with 3% interest per month or more. You will not be able to obtain the same performance from any investment, so you should use your investment money to pay back the expensive debt fast.
  3. Don't grow your debt.

With such simple to follow rules you should be able to successfully manage your family money and live a happy life.

razvanone
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I am not familiar with all the terms you use, but it seems to me that you have a whole bunch of relatively expensive debt including your home loans.

The home loan debt is around 24000 rupees monthly and then you have what appears to be 8421 rupees going into various savings plans. This money you will probably want to freeze some or all of, but you would have to check the consequences of doing so.

For example instead of the floating health plan, are there government or employer health options ? You cannot afford everything you are paying for now. Your salary seems to be ok for a country like India, but your expenses are too high.

At what rate is your salary increasing annually ?

Your credit card debt is 2 lakh, which is about three months salary, which is not too terrible, but it will increase over time and you will pay more and more of your income in interest. So you need to stop some of those savings plans and pay off debt. Also you probably need to cut expenses. It is necessary for you also to look at the interest rates on the cards, and pay off the most expensive one. Since your don't mention the rate, it's hard to say how bad these are.

Eventually you will have a good lifestyle but this will require salary increases or paying off your home debt. At the moment because of high debt you cannot afford much.

Your goal should be to create a budget where expenses including debt are less than income. If you can pay off the credit card debt by some cheaper way such as an employer loan or from family that would be a good idea.

The best way would be to figure out how to get an affordable monthly payment - 25,000 INR in monthly payments is too much for you on top of the home debt . If you could refinance it at low cost,and pay it off over 5 years(so maybe 3500 monthly), stop using credit cards, and then live within your income then you will be fine.

thelawnet
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    Salary increase between 10-12 thousands each year. – private Nov 11 '20 at 14:37
  • Interest rate varies between 3.8 to 4.6 per month for diff. Card – private Nov 11 '20 at 14:45
  • If I can get a personal loan of 2 lac at interest of around 12% then is it viable option. – private Nov 11 '20 at 14:47
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    ok, 3.8 to 4.6% per month is incredibly expensive and will eat you alive. That works out around 56-72% per year, and this is terrible. As your salary is increasing reasonably quickly (14-17% per year), the home loan is not a big problem, since over time it will be a smaller part of your income. You would need to check what 12% means, as different countries use different interest rate standards, but it's obviously a much better option than adding on to credit card that costs 50%+ per year. – thelawnet Nov 11 '20 at 14:53
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    @private Keep in mind that consolidating with a new loan will be almost useless if you turn around and get more debt on your credit cards by failing to control your spending. The root of the problem is income vs expenses, not specific debt used (though you should of course also try to reduce your rate of debt as much as possible). ALSO - be wary of counting on future income to "save your finances"; act NOW, so that tomorrow's surprises do not fail your expectations. – Grade 'Eh' Bacon Nov 11 '20 at 21:54
2

In addition to other answers, apart from taking into account ALL your expenses and cutting down on any that it is possible to survive without, you might want to check a thing that has been quite popular since the last crisis in our country (I personally also do it, but for other reasons).

It is that for the duration of clearing up your debt, you move to a smaller/cheaper apartment/house and rent out the existing home you have a loan against.

It depends both on your particular home and the housing market in general, as well as feasibility of finding another place to live, but if you can rent a cheaper (and probably smaller) apartment somewhere else, and rent out your existing home, it could help you repay your debts faster.

Of course, you should take into account additional expenses, which might arise, if you move to another place. For example, if it is further away from your or your other family members' everyday travel places such as job, you could be getting into higher travel expenses.

However, if [cheaper apartment rent] + [expenses tied to the cheaper apartment] is lower than [rent you get from your existing home] you make a saving, EVEN if the rent you get doesn't cover your loan payments.

Of course, renting out does include its own expenses, however, it varies A LOT depending on your location and housing market. Landlords are not always expected in all countries to maintain a house in pristine condition all the time. Renters do tend to use up places more than owners though, so you might have to do some minor redecoration every couple years, especially if renters change.

Other than that:

  1. So my total expenses are around 57,805. I am not including other expenses like food, electricity, etc.

If your take home salary is 71K, and you can only account for 58K, you have a pretty big invisible 13K+ Rs hole in your budget. That's 22% of your income. Granted, the 58K is the larger part, however, since you are using up at least 10K per month in extra loans, you should definitely look at whether you can cut down that 23K to the actual 13K you have.

  1. It frequently makes sense to concentrate on the debt that you can clear fastest. You get rid of the smaller debts and you free up money to save towards the larger ones.

  2. A bit about goals.

You are now using up around 114% of money you earn (based on how much you say you take out in extra credit cards every month). This is unsustainable. You will have to reduce it dramatically somehow, as per answers here.

However, the goal should be that ALL mandatory living expenses -- housing, debt, commute, food, education, electricity, water, etc. shouldn't take up more than at the very most 50% of your income. The number is somewhat arbitrary, but it is a sort of first target you should aim for in long term (since now you are so far from it).

It is usually impossible to reduce oneself to complete misery and spend nothing on non-mandatory expenses (leisure, travel, eating out, cinema, anything that is not absolutely required). However, what helps is assigning some fixed amount every month that you now will not put you into ever larger debt.

But at the moment it seems it only will be possible if you are able to refinance your debt or otherwise reduce the 57K you spend (hence the idea of renting out existing home).

Gnudiff
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STOP SPENDING MONEY.

And then:

The only real solution here is higher income.

  1. Weekend job of some sort straight away.

  2. Unfortunately your wife will have to work, perhaps part-time. It should be trivially possible to have family childcare at no expense.

Minor issues: (A) immediately temporarily (i.e., for a year or two) terminate investments / healthcare if this is possible, and put the money to the cards (B) there may be some way to cancel the cards and consolidate to a lower-cost loan.

Unfortunately A and B won't solve the problem.

The only solution to this problem AFTER YOU STOP SPENDING MONEY is more income.

In the long-term you can only achieve that by advancing your career, but in the short term you will have to do 1 and 2, unfortunately.

Unfortunately the only solution to "needing more money" is "getting more money", other than tweaks.

To repeat. The ONLY solution here is:

STOP SPENDING MONEY.

And then:

Would have to work much, much more - to the point of minimum sleep 7 days. The situation is debt + child. Spouse also has to take a job.

Fattie
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    A well-respected PF person (a particular one I have in mind) often says "You can only reduce spending so much. But your income potential is unlimited." Another comment - years ago I followed a guy on twitter who had a blog called "deliver away debt". He did very well in an IT position, but weekend work gave him over $1000/mo to kill his families credit card debt. +1 from me. Increasing income will outperform budgeting any day. – JTP - Apologise to Monica Nov 11 '20 at 18:30
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    Yes extra money will help but only if you don't increase your spending at the same time. A lot people continue to fall deeper into debt as their income grows. More money -> more stuff. You have to live within your means regardless of what those means are. – JimmyJames Nov 11 '20 at 18:38
  • @JTP-ApologisetoMonica - right, the "deliver" guy story is 1st class. Good one. – Fattie Nov 11 '20 at 18:57
  • @JimmyJames - Yes, I'd agree. Ideally, a combination of two would be preferable. There are those who, without the debt, have a working budget. If the debt came from a one time black swan event, e.g. a medical bill, and not from ongoing bad habits, killing that debt may be enough. Only a look at the details will tell us the answer. – JTP - Apologise to Monica Nov 11 '20 at 20:14
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    I think the issue here is that this level of debt indicates a fundamental issue with how money is handled in the first place (eg, putting money into savings over credit card debt, not having a budget, etc). Yes getting more income means you can get away with being more sloppy with money management, but that is fixing the symptom (debt) rather than the underlying issue (money mismanagement). – stanri Nov 12 '20 at 08:05
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    @stanri , don't look at me, on this list I constantly scream ANYONE WITH A CREDIT CARD IS AN IDIOT and NEVER SPEND MORE THAN $500 CASH ON A CAR and IF YOU CAN'T CONTROL YOUR SPENDING A BETTER OPTION IS SUICIDE, and so on :) It's pretty expensive to get by with a 3 family in OP's situation/location/etc. I actually read the question as that he is NOT currently wasting money. (Apparently in the past, yes.) I couldn't agree more that OP should cut spending to the bone, BUT, OP and his wife have to work more. Pls read the mentioned "deliver debt" anecdote. – Fattie Nov 12 '20 at 15:20
  • how's that @stanri – Fattie Nov 12 '20 at 15:22
  • "Weekend job of some sort straight away." This isn't legal in India, since you're only allowed to work one job at a time, IIRC. – nick012000 Nov 13 '20 at 01:26
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    @JTP-ApologisetoMonica True, in principle "your income potential is unlimited". But the opportunity for it may simply not exist. By contrast, the opportunity to save always exists because the bottom level of pure subsistence is really low. – Peter - Reinstate Monica Nov 13 '20 at 15:05
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    And @JTP-ApologisetoMonica I find the "deliver away your debt" meme really stupid. (1) If you "do very well in an IT position" you make so much money that you shouldn't have trouble setting aside $1000/month temporarily for paying off credit cards (if necessary you suspend retirement fund or life insurance payments for that period). (2) If you enjoy working for $17.77/h before taxes, fine. For an IT person, delivering pizza is economically suboptimal (i.e., stupid). OK, he said he enjoyed it: But that's a lifestyle or hobby choice and should go into a lifestyle and hobby blog. – Peter - Reinstate Monica Nov 13 '20 at 15:15
  • @nick012000 , you may be mistaken, or may be thinking of a certain State only (recall India is Utterly Huge and has vastly differing laws) – Fattie Nov 13 '20 at 15:18
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    @Peter-ReinstateMonica - (your 2e comment there) do note that income / cost situations are drastically, radically different than in europe/americas. (You may wish to convert the numbers involved to USD to begin with to get a shock.) – Fattie Nov 13 '20 at 15:19
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    @Peter-ReinstateMonica Your opinions are valid, of course. I'd offer you 2 responses; (A) Personal finance is just that, personal. Everyone has their own back story. The IT guy had a valid one as well, and his pizza days were planned out, I believe it was a 6 month stint. (B) Budgets reflect priorities. Show me your budget, I'll know what you value. Not everyone wants to entertain "subsistence level". Keep in mind, this is "not" a discussion board, it's Q&A. You liked Grade 'Eh' Bacon's answer? That's the answer for you. – JTP - Apologise to Monica Nov 13 '20 at 15:25
  • @Fattie Yes, the level of income/expenses is lower but relative to that level the same considerations should apply. – Peter - Reinstate Monica Nov 13 '20 at 15:47
  • @Fattie Should be "anyone who has credit card debt" - there are a couple of reasons why credit cards could be used as a payment instrument (but they're vastly less necessary if you can have a debit card) – user253751 Nov 13 '20 at 16:49
  • @Peter-ReinstateMonica If you can't get more IT work and you can get delivery work, there's nothing suboptimal about delivering pizzas. (Also $17.77/h seems pretty reasonable?) – user253751 Nov 13 '20 at 16:50
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    I would suggest to everyone that this comment chain is now "too long / just chat / the mods will delete!" :) If you want to put in a different answer, do so. I've explained clearly why the thrust of the other answers are totally wrong. Everyone has made their points. If you want to add an answer, probably a good idea to do that. – Fattie Nov 13 '20 at 18:55
  • @Fattie I’m not a lawyer or from India, so I’m not entirely sure, but the basic understanding that I’ve gotten from reading questions about relieving letters on here is that in India, you’re not legally allowed to work two jobs at once, so you need to be formally dismissed from your previous job before you can start a new job. – nick012000 Nov 13 '20 at 21:18
1

The good news here is that your payments against the cards (25K) exceeds the additional debt you are accumulating (10K) so as long as the finance charges aren't extremely high, your total debt should be decreasing. If that is not the case, some information is missing here.

If it is the case that you are making a net 15K debt payment towards your cards every month and decreasing your overall debt, you don't seem to be in a trap at all. If it were the other way around (paying 10K and adding 25K) every month, then you'd have a real problem. The question here is partly: how did you accumulate this debt in the first place? Has your situation changed somehow?

One thing I notice is that your minimum payments are the same for the last three but the balances are not. That suggests there's some sort of minimum to the minimum payments. Is that the law in India or your state? The minimum payment on the last one is over 20% but the first 2 are more like 10%. If you can consolidate these to reduce the minimum payments by 10K, you won't be needing to continue to add debt.

At a high level, whether you pay off 25K a month and add 10K or just pay off 15K a month and add 0K doesn't matter much. But it could help you feel better about your finances, however. And if your interest rates are high on any of these cards, transferring the debt to a lower interest rate can really help. I'm not sure about how it works in India but it's common in the US for cards to offer low temporary incentive rates for transfers. You need to read the fine print but paying e.g. 0-3% for a year (or up front) and a fee when you've been paying e.g. 20%+ can make a huge difference in your finance charges. If you use those savings to pay off debt, it can definitely be worth it.

Aside from looking into that, take a very close look at your expenses. Can you find any savings? For example, buying things in bulk e.g. a 25kg bag of rice instead of a 5kg. Can you find things on sale? If you eat out, stop and pack your lunch. Discretionary costs are out. Take a hard look at what you buy for your baby: can you cut some things out of that? I know, that is hard: kids are expensive but there are probably ways to save there.

Based on your updates, I think you should seriously consider dropping the LIC payments and the mutual fund payments. AS a parent myself, I fully understand the desire to provide for your child but you aren't doing her a favor if you don't manage your money well. Your credit card interest rate is effectively nearly 50% a year. I can't imagine the returns on LIC coming close to that but I don't totally understand the conversion between Rs and lac. Think about it this way, paying off the principal of those cards is like getting a 50% return on your money. Get your finances straight first. You are currently paying 7700 in interest. That's more than half of your 15000 net payment. Using that 6000 increases your principal payment by more than 80%. Those CC finance charges are the enemy: the sooner you can reduce or eliminate them the better.

Lastly, is there a way you can get some more income? Asking for a raise might not be an option but what about a side gig?

The big point here is that you need to focus any new or 'reclaimed' income on paying off the debt. Once you have, you seem to be doing fine.

JimmyJames
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  • You need to add on the extra ~8k in interest being charged every month (envelope math only, using 50% annual interest on around 200k of total credit card debt). The OP does not seem to have a full handle on what expenses are actually going in and out, and the increasing number of cards makes it highly unlikely that the debt is going down rather than continuing to go up. Just making minimum payments on a credit card would typically take > 10 years to pay off, and with 50% annualized int rates that would imply racking up charges 5x+ the initial costs charged! – Grade 'Eh' Bacon Nov 11 '20 at 21:50
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    This is a razor's edge situation, the statement that OP seems to be doing fine is quite troubling. – Grade 'Eh' Bacon Nov 11 '20 at 21:50
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    @Grade'Eh'Bacon Can you explain how? It would be great if the OP was paying more than 15K off a month but the net here is in the positive direction. You don't go bankrupt that way. – JimmyJames Nov 12 '20 at 14:46
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    You are assuming that the OP's debt is going down - but that is very unlikely. He is close to maxing out 4 credit cards; unless he suddenly got a new job last month and is finally paying them down, that means his debt is increasing as a mathematical principal. More likely is that the OP is unclear about the true monthly expenses being placed on his cards [there is some vagueness in wording there - note as an example, again, that he is referring to monthly payments only, not changes to overall balances - a classic symptom of someone in over their head]. – Grade 'Eh' Bacon Nov 12 '20 at 15:27
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    Regarding "conversion between Rs and lac", a "lac" (also commonly spelled "lakh") is a multiplier pretty much endemic to the Indian subcontinent and it means 100 000. So "Rs 4 lac" means "four hundred thousand rupees". – TooTea Nov 12 '20 at 15:36
  • @TooTea Thanks. I've heard the term but I wasn't sure of the multiple. I thought it might be a million so I'm glad I pled ignorance instead. – JimmyJames Nov 12 '20 at 16:18
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    @Grade'Eh'Bacon Sorry, where are you seeing that the OP is maxing out the cards? I agree it's unspecified where all this debt came from as I noted in my answer. It's possible that you are correct but if so, it's probably a good start for the OP to figure out what's wrong with their current understanding of the situation. But as long as you are paying more off than you are spending on credit cards you are still paying them down. This is much better than not making the minimum payments. – JimmyJames Nov 12 '20 at 16:25
  • The comments between the two of you make me wonder if the question, perhaps due to the non-$US currency, is a bit unclear. If I carried a credit card balance, and while still running expenses through the card, saw the balance each month declining, by say, 5%, I'd say the cards were on track to be paid off in less than 2 years. Not ideal, but not "hair on fire". We might ask OP to clarify the trend of his balance(s). (and to be clear, someone on the edge does benefit from either solution, tighter budgeting or side-gig.) – JTP - Apologise to Monica Nov 14 '20 at 14:45
  • 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. I have already stopped the mutual fund. – private Nov 14 '20 at 19:55
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I do know that I have to control my credit card expenses. But I am at a point where I have to use credit cards to keep things running. So what should I do to break this cycle?

You just answered your own question. Do what you know you need to do. Control your credit card expenses.

You don't hear other people saying "My home is burning and I know I need to put water on it. But I am at a point where I have to add fuel to keep things burning. So, what should I do to break the cycle?

The problem is you don't see your actions as causing the problem; and, if you continue then by the time you start reaching for water the fire will have burned everything and there won't be anything left to put out.

Sell anything of value and pay off the smallest credit card, then destroy the card. Take the extra money to pay off the next smallest and then destroy that card. Repeat until you have no more credit cards, then never buy anything smaller than a house on credit again. Every extra bit of money you have needs to go into the smallest debt you currently have. You are dangerously close to losing everything because of the credit cards.

If in attempting to follow this plan, you might discover that it is already too late. If so, sell the house before it is taken from you, pay back the money to the bank, and move into a cheaper place.

Borrowing more isn't "keeping things running" it's poisoning your future. Poison your future enough, and you and your family won't have a future.

Edwin Buck
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