Personal Finance: Debtors must ensure to meet final EMI

What is an EMI? An EMI is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is paid off in full.
 
The benefit of an EMI for borrowers is that they know precisely how much money they will need to pay toward their liabilities each month, making the personal budgeting process easier.
 
Requesting your creditor to review your current liability with the possibility to consolidate and/or restructure your debt and reduce your EMI especially if you are facing a debt-crisis, is the only way to go also if your expenditure currently exceeds your income, or your entire income is absorbed by your EMI.
 
The best advice I can give you based on my experience is consult a well-known debt consultant who can review your total debt exposure and derive at a total reduced EMI, which could be in the range of 40-50 per cent of your total income. It should not really exceed this percentage at any given time as you need to sustain yourself and your family and also possibly put some small amount aside once you are in the position to save, even if you start small because it’s better than nothing!
 
Now present those individual projected EMIs to your creditors and be open and honest, show them your entire situation because you want them to help you and they cannot do that if you have kept some liability aside without showing anyone because you assume you can manage this yourself.
 
Wrong! You cannot because, if you could, you would not be in the position that you are in right now. So stop acting as if you are still in control; you have lost that control which is why you are now seeking help.
 
This is the time to be absolutely transparent with your consultant if you opted for one, your creditors and most importantly, yourself. Free yourself from worry, negativity, tension, stress, strife, animosity and depression because these emotions are what hold you back from progressing and recovery.


Be sincere and offer your full co-operation with those offering to assist and support you. Explain to your creditor why you need that specific EMI amount because that is what is within your ability to repay each month. They may be able to approve the amount or very close to it however, it would be a far cry from what you are expected to repay right now, so be grateful.
 
Once all of your creditors have reverted with the final approved EMI then check all the EMI to ensure that they are within your reach to pay and that you will never have to live in default again. Ensure you have surplus funds to sustain yourself before you sign all of the new agreements.
 
Finally, you can breathe! So, from here on your ‘To Do’ list should be as follows:

1.      Ensure you maintain your EMIs from the first month without fail.

2.      If you have issued EMI cheque payments then ensure the relevant funds are in your account to honour that cheque (Very important!).

3.      If you have a DD (Direct Debit) from your account for these payments then ensure the funds are in your account.

4.      Maintain a payment schedule to update payments made and the running balance so you are aware when you pay your last payment that the debt is fully paid up!

5.      Once this is paid up, request an official document from your creditor confirming your account is zero and closed (also very important).
6.      Maintain your records for at least five years.
 
Your ‘Not To Do’ List
 
1.      Never skip a payment.

2.      If you do skip a payment due to unforseen circumstances, immediately contact your creditor, explain the reason, request an alternative payment date and meet that commitment.

3.      If you know prior you will not be able to meet the payment then call your creditor, explain the reason and secure approval for the delay. Try your best to secure official delay approval in documentation or email.

4.      Ensure you meet this commitment on the extended date.

There is no excuse for skipping payments once you have secured the requested reduced EMI because now you have surplus funds over and above your EMI total. So unless something really critical arises then it could be a valid reason, otherwise not.
 
Realise that on this journey of debt recovery there are many sacrifices to be made like:
 
a.      Downscaling your current standard of living.

b.      Liquidating material assets and learning to live without them.

c.       This includes relocating to a smaller home.

d.      Minimize spending, shopping, entertainment where plastic spending should be completely eliminated. Your current credit cards will be blocked after signing your new agreement but that does not give you a reason to go and apply for another card elsewhere.

e.      Remember the purpose of ‘recovery’ is to ‘live without’ until the process is complete.

There are many ways to save money or limit unecessary spending. Go online and research the huge volumes of self-help information on the topic.
 
Nothing ventured, nothing gained! Rome was not built in one day! Hence you did not accumulate this debt overnight so don’t expect to it to disappear immediately as there is always a lesson in everything we must learn, this being one of them.
 
[Note 1:  Theda Muller is a UAE-based author of two books: Embrace Financial Freedom Volume One: 10 Proven Ways To Release Debt And Emotional Fears In Today’s Economy, and Volume Two: Releasing Fear And Bouncing Back From A Debt Crisis.She also conducts webinars and workshops on debt recovery.]
 
[Note 2: The views expressed are the author’s own and do not reflect in any way, the views of Emirates 24|7. Readers are advised to carry out their own due diligence before taking any decision.]