Not doing the simple math — your outflow for loan payments cannot be greater than your income — can cost you heavily as Vineet Saxena (name changed) found. An employee with 16 years of experience in the IT sector in Bengaluru, Vineet recounts how he defaulted on loans, restructured payments and went through many painful years to get his credit back on track.

“I took on loans early in my career to buy a two-wheeler and to handle payments for the liabilities associated with my father’s failed business. As and when expenses, such as for my wedding, came up, I would take on debt,” he recalls.

Wake-up call In 2005 he defaulted on a loan and moved to Bengaluru, hoping it would go undetected. Though his salary was increasing, interest was ballooning. He was forced to find new lending sources — to roll over loans or meet interest payments.

In 2009, he had a wake-up call. “My CIBIL score was bad and it became a struggle to get any loan. I had eight credit card dues, one personal loan and a car loan to pay,” he recounts.

He sought help from Abhay, a credit counselling service from the Bank of India. “They explained my choices and advised me to negotiate repayment terms with the lenders,” says Vineet. He went through a long process — settling with banks after arranging funds by selling jewels or borrowing from friends and employer.

Thanks to his wife’s earnings and the loan EMIs coming down, he was able to bridge the gap in his monthly budget. But after two years, he realised that the road to recovery was still very long.

“My CIBIL score was at 790, but my car loan was rejected because my report showed that I had settled, and worse, was a wilful defaulter — due to the loan I had run away from” he says. So he repaid the settled loans in full and the defaulted one .

Having a one-year view of your expenses and planning ahead will help prevent the need to take loans, he says.

Also, paying with a debit card rather than credit card will place a limit on your spending. “When you have four-five cards, you don’t realise how hard it becomes to repay. You fall into the trap of paying the minimum balance and your liability keeps growing,” he warns.

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