Till Debt Do Us Part: Credit Tips for Newlyweds to be taken

You have great plans for your life, same goes with your married life as well. Those days are gone where the girl used to look for a dream boy who would come in a horse to ask for her hand for marriage or vice versa for a guy. In today’s world marriage is complicated and it is really important to understand your spouse’s financial status and also understand their spending and saving patterns. This is the reason why these young people seek their parent’s permission to understand their partner better before they get married.

Let’s take that you got married and you both are working class, you make financial budgets for every month and also make investment strategies and allocate responsibilities for who pays what bills. You will find difficult to comply such budgets, especially when you were financially independent and used to take such decisions on your own when you were single.

As a couple it is really important to exercise this activity for a healthy relationship and also to help improve cibil score of each other, so that in future you are planning to get house of a car you do not face any issues with speedy approvals.

The following tips will help you to make your financial life great when you are newly married,

Know both your credibility

It is important to understand both your financial status, opt for a credit bureau report initially and see how the scores look and try working out together to upraise the cibil score. if your partner has an existing debt or interest which is supposed to be paid, pay it off so that you do not face any inconvenience while opting for a fresh line of credit.

If there is no cibil score of your partner that is your partner has never opted for a loan in their entire  life, try getting a loan without cibil check and start making your way to a good and healthy credit score.

If there are some lines of credit left which you need to repay, make sure you have all the repayment dates in your mind, so that you do not skip any monthly installments which would lead to a bad cibil score.

Do not close any preexisting line of credit

Many newly married couples make this mistake, immediately after getting married they understand each other’s spending habits and if one of them is a spendthrift, the other partner will ask to close a credit card or two. Closing a credit card won’t help you to control your spending habits or help you save money but instead it will make an adverse effect on your credit score. Yes, if you close a line of credit, the credit score takes a huge dip which will cause you a lot of problems in future when you are deciding to buy a house or a vehicle.

Always keep your credit card accounts open and instead ask your spouse to control their expenses and do make small transactions on the credit cards to avoid annual fees. This way you will be able to pull off a great cibil score with fewer hassles.

Only apply for a loan when needed

There are some marriages where both the partners are spendthrifts. In this kind of a relationship both spend their money without having any second thoughts and when their heads are sunk under high debts they realize their mistakes and apply for a loan to clear their debts and this pattern continues. Always remember apply for a loan only if you need one. Do not take a loan just for casual sake and end up being in financial crises. Understand your needs and try few traditional options like borrowing from parents, relatives and if nothing is working out go for a loan.

A new marriage demands a lot of things, love, loyalty, integrity and also financial stability. Spend your money well and save a lot because getting married is a huge and your partner will expect a spouse who has financial knowledge and integrity who would lead to a brighter future.

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What to do when you cant repay your home loan?

As the real estate prices are soaring high, it is becoming difficult to buy a residential property by making a full down payment. A home loan is a blessing for a middle class Indian family as it helps them buy a dream abode without arranging for the entire amount upfront.  The loan tenure usually extends for a period of 15 to 20 years making EMIs affordable. But many unforeseen circumstances can make it difficult for a person to honour this long term commitment. A loss of a job, medical reasons, accidents, underestimation of future expenses are just a few reasons that can make it difficult to make the EMI payments on time. What if you miss some home loan EMIs? What impact will it have on your credit profile? How should you handle this situation? Read on to find all solutions.

Repercussions of not paying the EMIs

The first missed EMI doesn’t involve any serious action by the bank apart from a penalty charge that is added to the next EMI. The bank waits till the second monthly cycle to see if it is repeated default. If the second EMI is also missed, then the bank sends a reminder to the borrower to pay the amount. If the third consecutive EMI is also missed and the borrower doesn’t respond, the bank will send a legal notice to the borrower. It will mark the loan as an NPA and enforce “The Securitization and reconstruction of financial assets and Enforcement of Security Interest act’2002” ( SARFAESI)” to take possession of the property. In another 2 months the bank can initiate the foreclosure procedure wherein it auctions the house to recover the outstanding loaned amount. However no bank likes to get involved in this cumbersome process. The bank will always be open for negotiations and try to offer you a solution to settle things without a foreclosure. For this you need to approach the bank in a timely manner. You have a sufficient time of six months before your house is put on auction.

Impact on credit score

Payment history accounts for 30% of your credit score. Every month the missed payment information gets recorded on the CIBIL report and dinges your score by a few points. When you miss three consecutive EMIs, and the bank writes off the loan as an NPA, your name gets recorded in the loan’s defaulter list. This severely hampers your CIBIL score, and reduces your chances of getting approved for any kind of loan in future until you work to improve your credit score. If you do get approved, you will have to pay a high home loan interest rate on your borrowings.

Plan of Action

  1. In case you are unable to pay the EMI due to a sudden medical problem or a job loss, then the first thing is to approach the bank and explain your inability to meet the current EMIs. Take relevant documents to prove that the problem is temporary and you will get over it soon and service your home loan EMIs in the usual way. Also take proofs to show that you’ve always been diligent in meeting your obligations and your intentions are good. If the bank finds your reason valid and gets convinced that your situation will improve after a few months it will grant you a moratorium period of 3-6 months.
  2. If you have taken insurance, check whether it covers for loss of job or major illnesses. If such is the case the insurance company may take care of the EMIs for three months.

 

  1. If an increase in the rate of interest has increased your EMI amount or there is a strain on your finances due to some other reason, you can request for a restructuring of the loan. The tenure of the loan will be extended so that your EMI amount reduces.

 

  1. If you are facing regular cash flow problems, but have sufficient amounts in investments like FDs, equity, mutual funds, then you may think of liquidating your investments to service the EMIs and avoid the risk of losing your home.

 

  1. If you think there is no viable option left, but to dispose the property, you may discuss it out with the bank officials. Ask them if you can arrange the sale of the house yourself and use the sales proceeds to repay the whole amount. This will ensure that you get the best deal possible. It may leave you with some amount even after paying the bank’s liability.

 

Bottomline

Home loan is a long term liability and the EMIs take up a large chunk of one’s income. If it is not managed properly it can become a huge financial burden. It is always a good practice to have a contingency fund of 4-6 months of the EMI to tide over emergency situations. An insurance that covers for loss of job and illness is also a good way to prepare for crisis situation. If you are still not able to make repayments on time, follow the strategies above to avoid the risk of losing your home. Remember a dialogue with the bank will always help you find a feasible solution.

Are You Financially Healthy? 3 Ways to Check it

To add wings to your dreams you need to be financially robust. Being financially healthy is not limited to having a lot of hard cash in your bank account or having a recurring source of monthly income. Your financial health basically defines the overall dimension of your personal financial health. It includes solidarity of what you earn today, how much you save and your ability to draw loans for future.

As important it is to have a stable source of income in your life as is your readiness to face the unforeseen circumstances. From medical, to social, to personal, there could be several types of emergencies in life that can hinder your financial growth. To name a few, medical illness or a fractured leg bone, divorce, unemployment are a few occurrences that could hinder the pace of financial growth in your life.

No one plans for such unlikely or unhappy events in life. However by closing your eyes in the rain doesn’t save you from getting drenched. You should thus always take a good care of your financial health and stay ready for systematic financial aids such as personal loans for emergencies.

Let’s find out 3 clear ways of assessing your financial health:

  1. Credit Score
    A Credit score is basically a score of your financial report card. The better is your credit score, the better is your credit worth. Credit score by CIBIl which is the first major credit bureau of India, is measured between 300 to 900 points. The closer you are to 900 mark, the better is your score. According to CIBIL approximately 80 % of loans are processed to those who have score above 750 points.

    Your credit history primarily affects the score. Factors such as your past credit history of debt repayments, the length of your loans and credit cards, the mix of debts, use of credit limit and your recent loan queries basically affect the score. With a good credit score, lenders consider you as a credit worthy person and are keen to lend money.

    Certainly a person who is more likely to raise loan without a hassle is considered more financially healthy than the one who has a low CIBIL score and needs a guarantor for the same task. Your credit score thus plays a crucial role in reflecting your credit health.

  2. Debt to income ratio
    Another determinant of your credit health is your debt to income ratio. Ideally it is considered that you should not use more than 30 % of your income in repaying the EMIs and credit card bills. For, it is considered that approximately 50% of your income would be used on your basic and personal expenses. Ideally a person should also contribute towards the savings (including insurance) for retirement. However when you use more than 30 % on debts, it affects your savings and running expenses. This also indicates that owing to more financial obligations to meet every month your financial health is compromised. You are not able to save for your future and an unforeseen event may disrupt your financial health.
  3. Credit cards
    In this age of plastic money, one of the key indicators of a person’s financial health is the way s/he uses cards. The high balance on credit cards is indicator of high credit appetite. And when you are unable to repay the balance and roll it over to next month, it not only attracts a late payment charge it also indicates shortage of paying for your financial obligations. This hurts your credit score and reflects bad credit health.

    The best way to keep a check on credit card balance is to use a debit card instead. Every use of a debit card would remind you of the expenses being incurred and help keep a check on how much you are spending. Likewise, those who own too many credit cards and keep balance on each card are considered financially weak people.All in all, how you use your funds today directly affects your credit worth. Right from your monthly income, to your savings, to insurance plan, loans and credit cards all define the state of your financial health. Simply by pulling out your free credit report you can have a direct access to your financial activities and analyze how you are performing today for a healthy tomorrow.