I am 35 and work in a multinational company. My wife was working in a private bank. We took a home loan and a land loan from the bank where my wife was employed. Due to interest subvention from her employer, our interest rate on home loan was much lower than the prevailing interest rates.

After the birth of our second child, my wife quit and subsequently our interest rate was raised to make it on a par with the general public's loan interest. With single income, I am finding it difficult to service both the loans.

At the time of taking the home loan, we had not taken a PF loan, because we had a surplus from my overseas assignment.

Cost of our flat is Rs 65 lakh, our liability is Rs 20 lakh (balance tenure is 11 years) and the land loan outstanding is Rs 12 lakh (loan term is eight years).

EMIs for both the loans are Rs 43,000. Barring two life insurance policies (with very small premium) and PF balance of Rs 6 lakh, we don't have any other savings.What is the best way to reduce the liability?

— Sundar

Most young double income families accord higher weight to real estate and ignore other asset classes. With very poor liquidity, such people struggle to cope during difficult circumstances, with a single income.

To meet their higher standards of living, they swipe their credit cards. This leads to higher liability. Your lack of savings in other asset classes is a classic example of this trend.

Under the situation, there are a few options you can use to come out of the mess. One of which is increasing the loan tenure to bring down your monthly outgo. The other way is to apply for a PF loan and opt for prepayment of your land loan.

With lesser loan component and longer tenure, you can bring down your monthly outgo.

If your banker is not willing to extend your loans' tenure, move the loan to a financial institution that offers more repayment period. By doing this you can increase your monthly surplus and also avoid being put on the credit defaulters' list. With your PF outstanding reduced, you have to improve your liquidity by saving in other asset classes so that you can meet an emergency.

If you receive any one-time income from your employer or from other sources, don't use it to repay your home loan till you have created sufficient liquidity to meet other needs.

I am 24 years and work in a private company. I live by myself in a metro, while my parents live in a village. With my credit card, I purchased a mobile phone and a motorbike. I opted for revolving credit and used the balance transfer method to manage my credit card dues. But with continuous purchases using my credit card, my outstanding is close to my credit limit. I am not in a position to take money from my parents to settle the dues. Please suggest a solution to reduce the liability.

— Saba

First-time earners are eager to improve lifestyle without bothering about the cost implications.

First and foremost point for salaried and young individuals is that it is better not to have multiple credit cards as this will only lead to a debt trap in most cases.

Your liquidity situation seems to be very poor. One of the best solutions is to convert your outstanding into a personal loan and settle it as early as possible.

If your current income is not sufficient to avail a personal loan, ask your friends for a short-term loan and use it to settle your credit card dues.

Once your monthly surplus increases, go for a personal loan and settle your short-term borrowing.

A few months ago during an emergency, I took a personal loan of Rs 3.1 lakh from an NBFC for three years. The interest rate is 25 per cent (fixed) with monthly reducing balance.

Currently the EMI is Rs 12,326. My friend suggested shifting the loan to SBI. But by the loan terms and conditions, pre-closure penalty is 4 per cent. Is it worth shifting the loan?

— Kumar

By shifting your loan to SBI, you may save a substantial sum.

To shift the loan, you need to shell out pre-closure penalty for the loan and a processing fee of 2-3 per cent for the new loan. But it is still worth the pain.

For 25 per cent interest, your interest outgo will be Rs 1.34 lakh.

Currently SBI is offering personal loans at 16.5 per cent. For the same loan amount, your interest outgo will be Rs 85,000. This means an effective saving of Rs 49,000.

Considering that you need to shell out 7 per cent (pre-closure and processing fee for new loan) of Rs 3.1 lakh, it will work out to Rs 21,100. By shifting the loan you may end up saving Rs 28,000.

So swap the loan and enjoy the benefits.

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