11 ideas to avoid a high cost personal or credit card loan

Rohit ShahLoans are inevitable, most youngsters say. But there are good loans and bad loans. Education loans and home loans are good loans, all of us know. And by now, you are aware of the bad boys on the loan street – high cost credit card and personal loans that are used to fund some impulse purchases or to cater to our indulgence. Many times, the reasons may not be bad, but one has to borrow money. It can be a temporary cash crunch or sudden expenses such as a planned surgery in family which is not covered under your medical insurance. These cannot be avoided. But at the same time you do not want to go for a personal loan or a credit card loan. How do you do that? Here are some quick hacks that can come to your help.Review your assetsReview the asset side and find out if any of your assets are not performing well. No point in generating a liability when your asset is earning poor returns. Imagine your balance sheet with an asset generating sub-par returns on one hand and a liability at a much higher cost on the other hand.Loan from FriendsWhy not take a 9% loan from Friends? In all probability, they may have kept the money in savings bank account at ~4%. So this can be a win-win situation. Offer post- dated checks so it gives confidence to them and makes you disciplined and committed. Push back the outflowEarlier, one rupee income was equal to one rupee earned. Then we learned that a rupee saved is also equal to a rupee earned. Now, let us realize that one rupee deferred is also a powerful saving, in many ways. It at least can give you a much needed breathing space. So look around and see what you can defer or cut back and over manage your cashflow. Rework on the tax beneficial borrowingsYou may already be having a loan on your house. If your need for funds is long term, then it may be a good idea to assess if the bank can re-evaluate your property and give you additional loan via say loan against property. Long live the home loanIf your current home loan rate of interest is high then you can port out and reduce the EMI burden. You can also extend the tenor of the loan and reduce the EMI. Yes! My employer is superCheck for your company’s policy for employee assistance. Most employers provide for an interest free advance for say six months. This may be linked to your eligibility as per your grade etc.OLX & Quikr are coolGot something valuable in the house that you don’t need any more? Then you know what to do. Look around your house for generating cash. The good old LICYour insurance policies can be used to take a loan. We have observed the borrowing rate on LIC policies to be around 9%. You also get flexibility in terms of repayment. Borrow against long term savingsYou may have invested in fixed deposits, NSC & KVPs. Banks will be happy to lend you against these. Normally they charge 2% above the rate you earn on these savings. This may effectively cost you ~11% or so based on specifics. Magic! Thy name is cashflowStop all investments till you are cashflow positive. It’s not a good idea to stop your long term goal based savings. But neither is a good idea to borrow at high cost to fund your SIPs.The root causeTake some-time out and think through on what made you come to this situation. Do you have structural problems with your earning v/s spends? The problem may not go away unless you address the root cause. You may need additional helping hands of earning.Golden Tips1. Take a mini vacation & pay attention to improve liquidity. Get out of the loop. 2. Review your cashflow in detail and make a Pareto analysis. Then, well, you know the next step!3. Take one step at a time. Focus on small wins to get to a positive mind-set. Celebrate as you move forward. Author is a SEBI Registered Investment Advisor and has founded www.gettingyourich.com.