How to manage loans when unemployed

05 June, 2020

By Antonet Fehmi

"Money can't buy you happiness, but not having money cannot buy you anything" Money is an essential part of life that is required to fulfil the necessities. The widespread Covid-19 virus has undeniably crippled the economy of the world leading to many job losses. Job loss can lead to financial hardship and mental distress, especially when you have debts to clear, and when the economic recovery is uncertain. The external conditions may seem out of control, nevertheless, there are some things that we can control. And so, we must take certain steps to take control of money or the lack of it will take control of us.

1.Know where you stand

It is important to assess your financial situation and evaluate them so that there is a crisp plan to help you out of your situation. This involves making a list of all the sources of income: your savings and any liquid assets. You must also make a record of the monthly fixed expenses such as rent, insurance, school fees, any monthly EMIs, and the variable expenses such as food, utilities, water bills, electricity bills and phone bills

2.Manage your expenses

Once you have a picture of your monthly income, you must distinguish the priority and non-priority debts. Bills that can lead to serious consequences when not paid, needs to be paid off first. For example: You could be evicted if you do not pay the rent on time. A crucial situation often include decisions that can make you uncomfortable, and that calls for cutting down unnecessary expenses like entertainment subscriptions, opting for cheaper prepaid phone plans, finding cost-effective alternatives of transport and shopping for utilities at lower rates. It is important to spend your money wisely on the Four Walls: food, shelter that includes utilities, clothing, and transportation. These changes can be excruciating in the short run, but tough times call for tough measures that can benefit in the long run. 

3.Credit cards

"You don't build wealth with credit card rewards and airline miles. You can't beat the credit card companies at their own game"

- Dave Ramsey.

When your sources of income have been cut down, it is best not to use credit cards or use them only in the case of emergencies. Credit cards charge the user with high interest and late fees when not paid in time, which will only give an added pressure mentally. 

4.Don't bite off more than you can chew

Debt is like a trap, easy enough to get into it, but hard enough to get out of it. It is easy to assume that the loans can be paid off when the monthly charges are designed to look minimal and the interest rates are hidden, only to realize it is an agony to pay out of the salary, every month for a longer term. If you are in a situation where you need a loan, be sure not to borrow more than you can afford to pay back. A comparison of the loans to get a lower interest rate can mitigate the expenses during the crisis. 

5.Opt for Moratorium only if you must

During a time of financial distress, the Reserve Bank of India had announced moratorium for borrowers as a relief. But there are always two sides to every coin. Moratorium may sound like a waiver of the loan, but it is just an adjournment. It gives the advantage of not paying your EMIs for a certain period. Banks will continue to add interest on the outstanding amount and offer you an option of extending the months of payment or increase the EMI in the coming months of payments. Credit cards are infamous for their charges, opting for a moratorium is only an additional gain for the creditors as they charge exorbitant interest rates. It is advised to go for a moratorium only when you are in a dreadful need of it.

6.Approach your creditors

The worst thing you can do when you see a pile of debts is lurking about not having enough money. If meeting your financial obligations seems out of reach, call your creditors, and inform them about your situation and be honest about it. You can negotiate with the creditors for a lower interest rate or a deferred payment. Some creditors can offer you the option of lowering your payments, based upon your previous records. You will be surprised by the way they can come to your aid.