Being in debt is a huge burden that can be physically & mentally felt and can sap out the energy and life in you. We have to deal with day to day responsibilities of our job, of being a parent, being a spouse, owning a home, paying medical expenses, hospitalization, Emergency expenses, etc. Then add lack of money and then bills and then more bills. Ask anyone what debt feels like and they will say words like: overwhelming, paralyzing, crushing, life squeezing and even ‘want to commit suicide’.
Now imagine yourself in a situation where you have taken a loan, say a personal / home loan, and you lose your job and have difficulty getting another job at the same salary. Or for whatever reason, are unable to make the regular EMI payments. Perhaps you don’t even have insurance on your home loan amount.
I too have been in debt owing more than 14 lakhs in bank loans & credit card loans which I managed to pay off after 7 agonizing and painful years. These were personal loans that were taken to start of a business that eventually went bust just within 2 years. The initial year or two were manageable as I was able to pay the EMI of the 3 banks from whom I had taken the loan.
Then when the business started to dip and till the time we were forced to wind up, I dug into my pockets and paid the EMI from whatever little I had remaining. Then there came a point where I had only enough to sustain while praying not to be hit by any emergency crisis / unplanned expenses or god forbid anyone in my family falling sick and requiring hospitalization.
I could no longer pay the EMI as I just could not afford it and I just did not pay the next month EMI. That month went by with a lot of worry and stress and was happy there was no immediate reaction from the banks. The second month to went by with only one odd call from the banks reminding me about my pending payment to which I told them of it being done soon though I had no idea how.
My problems began to mount from the third month when the banks started calling me and demanding payment in a very rude manner making me feel like a worthless person for taking a loan and not paying back. They would call everyday and harass me and I suffered without telling my family of the stress and agony I was going through. I even turned down the volume on my Landline and always tried to be around the phone so that I could pick it up when they called. I stopped going out during the day and would only venture out post 6pm when I knew there would be no more harassing calls from the bank.
There were however the few instances when I forgot to turn the volume down on the phone when I had to go to the toilet or had to go out of the house for some urgent work. My family happened to answer these calls and had to face a volley of rude abuses that were difficult for senior citizens like my parents to handle. My wife & parents were rattled. Never in their life had they faced situations such as this where someone hurled abuses and threatened them. I cried in my room when they told me of these phone calls. I cried because I felt vulnerable and threatened but more because of what my family had to go through.
I was sent advocate notices demanding payment and was even called to their legal office and spoken rude to. I was even threatened with being arrested and put in jail for the bounced cheques. One of the banks also sent a loan collector home where he spoke rudely to me and my wife and I had to take him down our building and bribe him Rs. 1000 to just go away.
I went into severe depression and the thought of ending my life did cross my mind. I wanted an end to my problem and could not find a way. With all my secrecy of my debt I fought with my family and the environment at home was very tense and relationships on the brink of breakup. I had turned to alcohol for support and the world around me was crumbling. I was stuck and did not know what to do. I cried out at night asking god to help me.
When all seemed lost, someone suggested a Financial Counseling Centre where they told me to first clear of PSU Bank loans first thereafter clear Private bank loans. They advised me to speak to the banks and ask for a loan restructure.
After spending an hour with the kind & soft-spoken elderly gentleman who heard me out and explained to me the options I had (which I never knew existed) to closing my loans and being debt free, I felt a huge burden lifted and a ray of hope and confidence. I wish to share with you what he told me that helped me in the long run to be debt free and that too with Confidence and self-worth.
Lesson 1: DO NOT PANIC OR GET SCARED AT ALL – There is always a way out
Your situation is not a rare situation. You are not the only person having a bad loan and unable to pay back. Banks have thousands of customers who default on payments all the time.
You might feel like you are alone, but you are not. The only person who will help you in your loan is your bank. Defaulting on a loan is not the end of the world and the banks will themselves help you to close your loan. Do not worry. Do not panic. First step is to relax and be in control of the situation instead of being controlled by your situation. Getting arrested or being jailed is just a worst case scenario which even the banks will try their level best to avoid. So, take a deep breath and relax.
Lesson 2: TELL YOUR FAMILY WHAT YOU ARE GOING THROUGH
Your family is your support system and they love you crazy and till worlds end. They need to know what you are going through. What is the worst you will face when you open up and tell your family? They may come down hard on you and criticize and blame you for the problem you created and for not telling them.
This may last a day or three but eventually they will stand by you and support you because you are family. Take the heat; take the criticism as they have every right to jump you. Give it a few days to settle and you will see for yourself the support you receive from your family. Do not hide it. I learnt this the hard way. Your family will support you through life and death. Stamp your ego out because you require your family’s support.
Lesson 3: GET ALL YOUR LOAN PAPERS & REPAYMENT DETAILS IN ORDER
Make a loan file that contains all your Loan allotment papers, all your past EMI payment details, all email communications you have had with the bank, any notices sent to you by the bank or their lawyers, details of the loan i.e. loan date, loan tenure, interest rate payable, EMI amount to be paid and so forth. Keep all this handy when you talk to your banks.
Lesson 4: REMEMBER THERE ARE COLLECTION BUCKETS WITHIN BANKS
Every bank has got collection bucket levels where if you default on an EMI, your account is passed higher up these buckets to different levels (collection bucket level 1, 2, 3 and higher) of the collection department.
The first & second bucket is when you default on you first EMI. Here you have the first & second line bucket of collection agents who will call you and demand payment as they have a collection target to meet. These collection agents are the rudest and will belittle you and make you feel inferior.
Get past these two rude buckets and you will find agents at higher collection buckets who talk nicely with you and listen to your problem. Do not get scared or panic when you talk to collection agents in the first and second bucket as their sole purpose is to threaten and scare you into repaying as they have to meet their monthly targets. . When they call, just tell them calmly & politely that you wish to restructure your loan amicably. Do not get scared of these collection agent.
Lesson 5: TALK TO YOUR BANK AND BE HONEST OF YOUR FINANCIAL SITUATION
Talk to your bank and be honest about your financial condition. Tell your bank the genuine reason due to which you are unable to pay the EMIs. Tell them that you want to pay your loan back as soon as you can, and ask them of the options that are available. Talk straightforward and talk honestly. Every bank wants to at least recover their remaining principal amount and will certainly respond favourably to your request. If you are not able to pay the current EMI then open your mouth and tell them honestly. Speak out truthfully and let them know your problem.
You will get a call from your bank where they will set up a meeting with you to calmly and rationally discuss your options. Do keep in mind that banks always have plan B and Plan C for such situations and will certainly offer you options to repay the loan.
You now are out of the harassing & abusive phase of your loan life and can rest assured of a solution by your bank. .
Lesson 6: CAREFULLY CONSIDER OPTIONS GIVEN BY YOUR BANK
You may have a personal loan or loan against vehicle or property or home loans and may fear legal actions or repossession of your vehicle or property. They can take legal actions and also repossess your assets BUT there are a couple of reasons why you don’t have to worry about this.
The legal & repossession procedure are very lengthy and therefore banks will make every effort to resolve issues before going to court. Your bank will take every step possible to work with you to come to a satisfactory deal. Remember Legal recourse is always the last resort and the same mantra applies to banks also. So remember the first point: Do not panic or be scared.
If you have paid all your EMIs on time till now (Till the point you could not afford to pay), the bank knows you are a genuine borrower, and will take this into consideration when working with you to find a mutually feasible solution.
‘Genuine intent of Repayment’ is the single largest point that will work in your favour. Make it very clear to your bank that you do intend to repay your loan and would like to work out a favourable solution for repayment.
Banks understand and take into consideration genuine reasons like loss of a job, illness, or an accident that may render you unable pay back loans.
If solutions can be worked out, Banks would rather work with you rather than proceeding with legal acts or repossessing your assets. The banks want you to pay the money owed to them, or their principal amount or at least a part of it.
If you default on the loan and the bank’s NPA (Non Performing Assets) goes up, it reflects badly on the bank as they lose out on the money you would have paid them. Hence the bank would rather prefer to work out your loan and close it as soon as possible.
What is NPA (Non Performing Assets)?
For banks or any lending institution, a NPA or bad debt is usually any kind of loans that are not producing income and is like a dead asset. Before, it was restricted to businesses only, but since banks widely started extending consumer loans (home, car, personal and education, among others), they now include loans taken by the general public.
If any borrower misses paying his EMI for more than 90 days, the loan is then considered bad, or an NPA. High NPAs are a sign of bad financial health especially for the bank or financial institution. This has wide-ranging ramifications for a bank, especially in the stock market and money market. So, as soon as a debt goes bad, the banks want it either made better or taken out of their books even if it means writing the debt off partially or in certain select cases, in full.
If and when you realize that you are not in a position to repay your loans, take action immediately. There are three stages to your loan problem
- a) Before you default your loan
- b) After you default your loan
- c) After your loan becomes a NPA.
In the first two cases, the responsibility to act lies entirely upon you where in on the second stage you are likely to get reminders from your bank. In the last stage however, the initiative & responsibility shifts to the bank.
Things to keep in mind
- a) Ensure that you don’t give post-dated cheques unless you are sure that your account will always have that amount
- b) A Cheque bounce is a criminal offence and the borrower can be imprisoned for a maximum term of 24 months or asked to pay double the amount.
- c) Before and after your loan default and before it becomes a NPA. If you think or know that you will default on a secured loan then it is best to get the bank involved and sell off the secured asset or any other assets if needed, and pay off the loan immediately.
- d) The banks may decide to settle the amount based on the value and availability of security, time required in liquidating it, and the cost of doing so.
- e) Never borrow from another bank to pay off a loan. You will just fall into a bigger debt trap.
- f) If you have more than one credit card, you can use the balance transfer facility to reduce the rate at which you are paying interest on the outstanding amount. You can go for a new card as well. The interest rate on transferred balance is usually 0.5-1.75 per cent.
- g) If you have a you have become an NPA, it is important to make an application under the Right To Information and get a copy of the loan documents in the custody of a PSU bank. There have been instances when the bank has tampered with documents to change amounts and dates
So what are the Options Your Bank will give you?
Restructuring your loan
If your problem is the high EMI you have to pay on your loan due to personal reasons or due to the high interest rates then the bank or financial Institution will give you the option of restructuring your loan.
Say for example, you are currently paying Rs. 10,000 per month for ‘x’ number of months and you feel that it is too high and that you cannot pay that amount monthly then the bank might offer you a lesser EMI but for a longer period.
Assuming you have a 48 month EMI them the bank will restructure the loan and begin from the start (First month from date of restructure) and give you another 48 / 60 / 72 months to pay where by your EMI will reduce drastically to an amount you may be in a position to pay. This will give you enough time to repay your loan. You can also negotiate to sell off your assets and repay the loan.
Refinancing your Loan
If your bank is not reducing floating interest rates in line with other banks then you can approach your bank to reduce rates, or you can opt to shift your loan to another bank. For credit card debt, you can also opt for balance transfer by shifting your existing debt onto a new card with a 0% interest rate for 6 months, and paying off as much as you can within these 6 months.
Deferring Your Payments
When you are not in a position to pay off your EMI at present due to your personal reasons but feel that your financial situations will improve in a few months (Get a new job, expect financial gains in a few months, etc) whereby you are sure to start repaying the EMI as soon as your financial condition improves; you can then approach your bank for deferral of your payments. The bank will grant relief, giving you a window of opportunity to calmly seek ways to increase your cash flows.
Once the window closes, your EMIs will restart (on either the same terms or your new negotiated terms). This repayment may or may not include late payment penalties, known as Delayed Payment Charges..
Lump Sum Settlements
This is an option available though may not be feasible for a home loan, but it can work for a personal loan, credit card debt, or a car loan.
On a case to case basis, banks are sometimes willing to go for one time or lump sum settlements of outstanding dues. They will waive some of the charges or some of the amount and charges, and you can pay the rest as a loan settlement.
How to deal with Recovery Agents who Harass you?
If you receive threatening calls, inform the police and inform the bank that you are reporting the matter to the police. Complain bitterly to the bank. Threaten litigation if need be. Keep an audio recorder and record your conversations you have with your recovery agent.
In the conversation, try to get the agent to clearly say his name, what he wants from you, the name of his company and which bank has hired him.
If the goons pay you a visit, tell him point blank that you will file a complaint to the police and then file a complaint at your nearest police station. Take photographs of the person who has come to your house and submit these to the police. You can sue the bank individually, or approach a consumer action group. Banks have no right to send goons to your house so ‘DO NOT GET SCARED’. They cannot touch or hurt you. Remember lesson number 1. Do Not Panic or get scared. The Indian Law has you covered.
Here are few Credit Counselling centres who can help you:
- Abhay Credit Counselling Centre (Bank of India): www.bankofindia.com/ home/abhay.asp
- Disha Credit Counselling Centre (ICICI Bank): www.dishafc.org
- International Consumer Rights Protection Council (ICRPC): www.icrpc.org
- National Consumer toll free helpline: 1600-11-4000
- Consumer Education Research Centre (CERC): www.cercindia.org
- Citizen Consumer and Civic Action Group (CAG): www.cag.org.in
- Consumer Guidance Society of India (CGCI): www.cgsiindia.org
- Voluntary Organisation in Interest of Consumer Education: www.consumer-voice.org
- Consumer Advantage: www.advantageconsumer.com
To conclude the article, let me complete my story of how I got rid of my debt (Continuation from above).
I did not heed to the advice given to me by the kind gentlemen at the Financial Counseling Centre. Though I visited the PSU bank Loan Officer, I did not make the effort to close of the loan with them. Big Mistake!
Over the next year and half I met and spoke with the loan officers of the private banks and paid off EMI’s for 2 years and eventually closed off the loan in lump sum at a very less amount than combined remaining EMI. With that loan closed, I continued on with my life completely forgetting my PSU Bank loan.
I soon understood why the kind Elderly gentleman at the Financial Counseling Centre advised me to clear the PSU Bank loan first. I was suddenly hit by a Court notice with a bailable warrant demanding me to be present for a court hearing at the Andheri court. I approached the PSU bank only to be informed that legal proceedings were initiated against me and If I did not present myself for the court hearing then my bailable warrant would be converted into a Non bailable warrant and would face arrest.
I initially took the notice lightly till a well informed friend went through the notice and told me about the seriousness of the matter.
So on the date of the hearing I went to court with a friend and while casually chatting with the courts official I came to know that I needed to have a lawyer to defend myself. All this while I thought it was a walk in the park only to realize soon the seriousness of the issue.
I happened to see a woman lawyer (the only one I saw in the entire court complex) and told my friend that I was going to approach her. I approached her and presented the case in front of her just 10 minutes prior to my hearing. She agreed to take my case and took all my papers from me,
Once my name was called I stood up and started walking towards the accused box just when my lawyer stopped me and the judge too told me to just approach the bench.
The banks lawyer read out the offence committed by me and the judge asked me what I had to say. I told the judge that I had paid the EMI for two years continuously without a break and could not continue due to personal and financial constraints. My lawyer to pointed out that I had paid the EMIs without fail for 24 months and now was not in a position to pay.
The judge chastised me and told me to settle the loan amount and released me on a bail of Rs. 5000. I was sick to the core and on the verge of vomiting when my lawyer told me to just chill. This was just routine stuff. There are thousands of cases such as mine that are heard every week.
Eventually my relatives & friends came forward and arranged for the amount to pay off the PSU Bank Loan. I was finally debt free and boy I so valued that independence.
Remember one thing, even if you take a loan and default, your life does not end here. There are ways within the legal framework to help you to settle your loans and get back your debt free life. Just remember lesson number 1. Do Not Panic or get scared.
If you found this article helpful either for yourself or for some one you know then do share this Public Information and help others. Be kind and be helpful. There are millions who do not know their basic rights and endlessly suffer. Be the kind soul and spread this message. Help your fellow Indians out of their debt so that they can live a life of dignity & peace. Please share with an open heart. God Bless You!
