Bankruptcy or Debt consolidation: which is better to opt for?

If you are in debts that are becoming hard to repay, you must be thinking of debt relief options. For a debtor with outstanding amounts, it is essential to decide correctly which option to select - bankruptcy or debt consolidation. To decide on “which is better bankruptcy or debt consolidation?” one needs to understand what are debt consolidation and bankruptcy all about.

Debt consolidation is a debt repayment option where you take the help of a debt consolidation firm. This debt consolidation firm negotiates with your creditors on your behalf to reduce the interest rate. You will need to pay an amount for all your debts to the debt consolidation firm who will pay to the individual creditors on your behalf. Choosing a debt consolidation program can affect your credit both ways. Some lenders can consider the fall in credit score as a “negative mark” whereas others can appreciate your willingness to repay, even if through reduced interest rates.

Bankruptcy, on the other hand is a declaration of your inability to repay. It is a better option for those who are neck deep in debts. You can file for chapter 7 or 13 accordingly. In chapter 7, your assets are liquidated to pay off the debts. Chapter 13 allows you to repay your debts through a payment scheme under the protection of the court. A repayment plan prepared by the debtor is approved by the creditor and a court trustee. However, the debtor’s credit gets affected if he files Chapter 7 bankruptcy and not Chapter 13.

It is always better to try out ways of repaying your debts, either by a self repayment plan or through debt consolidation program. When you choose a consolidation program, it does have a positive affect on your credit score in the long run. Therefore, when you think about “which is better bankruptcy or debt consolidation?”, consider the credit affects of each process as well as analyze your financial situation. Depending upon how much you can pay and how your credit will be affected, you can choose to file bankruptcy or enroll for debt consolidation program. If required, you can also take the help of professionals who will guide you to make the right choice.

Low-interest loans availed by 300 women of SHGs

President Prtibha Patil had launched in the city a scheme bringing down the interest rate to four per cent, after the launch of the scheme around 300 women from self-help groups (SHGs) have taken loans up to Rs 10 lakh from nationalized banks in the district since October 10.

Till now twenty-five SHGs have been able to get the loan sanctioned while 15 are in the final stages of approval. Loan seekers have submitted applications for poultry, organic, goat and dairy farming.

Senior district coordinator T L Shere of Mahila Arthik Vikas Mahamandal (MAVIM) is one of the key agencies coordinating the scheme in the district said, “The scheme will enable women to take on more entrepreneurial activities and repay faster”.

He said Bank of Maharashtra, Bank of India, Central Bank, State Bank of India have offered loans ranging from Rs 50,000 to Rs 1 lakh.

The scheme has received such a good response while awareness is still very low. Pune District Collector Chandrakant Dalvi told that he will be organizing a meeting with bank representatives, followed by meetings in every taluka.

Shere said so far banks are offering loans at 9-11 per cent, therefore nearly 17 lakh women from rural areas from a total of 1.42 SHGs have been benefited from the scheme.

He added, “Around 45,000 SHGs will stand to get Rs 50,000, another 72,000 will get Rs 1 lakh and 18,000 SHGs will get Rs 2 lakh, with the state taking on an interest subsidy of nearly Rs 129.01 crore in three years”.

On the other hand a senior officer with a nationalized bank said they are confident of repayment going by the past records of SHGs. He said, “We will be only too willing to help these women”. Manisha Kale of Pune’s Garib Nawaz Bachat Gat, was the one to get the first disbursal of Rs 2 lakh from the president, hence she used the money on planning for dairy farming. “It should start soon. We have mobilized our group,” she said.

Getting Education loans for foreign studies not to be easy for next academic session

Now it will be difficult for the aspiring students who might be planning for higher studies in abroad from the next academic session.

The multinational companies have started handing out pink slips almost every day and job prospects are also getting bleak in the West, and banks are also likely to tighten their education loan norms. Banks are also considering of lowering the limit for collateral requirement for destinations like the US & UK.

Adding to the worries the students will be going to find difficulty in getting education loan for second and third step universities in these countries. As per HDFC bank sources, it has already zeroed lending in aviation sector where it will be conventional in its lending approach to students.

A senior banker, who refused to be identified, told that the step taken by the bank will be logical for the banking system, which is already facing chin music because of downslide in the equity markets. “It’s always better to prepare a disaster plan rather than wait for the disaster to strike, and then plan. Not only will the banks benefit, but students will also be saved from an uncertain future,” the banker said.

Sujan Sinha, senior vice-president, retail assets, Axis Bank agreed with this. According to him lot will depend on the existing macroeconomic environment globally when the new education season will begin next year. “Though it’s a bit premature to comment, but considering the uncertainty surrounding the Western economies, the possibility of banks getting stringent about education loans can’t be ruled out,” he said.

Sources in HDFC Bank conveyed that they are already taking precautions, in terms of lending. "There are always some sectors which are riskier than others. In the last few months, aviation has been identified to be one such sector, and hence we were cautious while disbursing educational loans in this sector," the bank official said.

While academicians are of the view that a majority of students have plans for traveling abroad for master courses and foreign degrees. In foreign the courses offered are usually of 12-18 month duration. This is further going to add to the agony of the students as the job market is improbable to stabilize in the near future.

Even Anindya Sen, professor at the IIM, Kolkata, doesn’t rule out a possible dip in the numbers. "Those students going to lesser known universities will find it difficult to fund their education, as the banks are likely to be extra careful while sanctioning education loans," he said.

Another end result will be a major shift from the financial sector to other areas of study. "Looking at the job market, we will also see a sect oral shift over the next couple of years. Not many students will go abroad for degrees in financial studies. There will also be a slight dip in the salary packages," he said.

Rupee is depreciating rapidly against the US dollar adding to the hardships of those weaving dollar dreams. Now the cost of the loan of $25,000 (around Rs 10 lakh) has increased to Rs 12.5 lakh as compared to six months before. However currently, in case of a loan amount exceeding Rs 4 lakh majority of the banks ask for collateral. The collateral can be in the shape of property, FDs, NSCs, life insurance policy or any other instrument, which the banks find appropriate.

A Syndicate Bank official also points towards the rise in defaults. "If we are faced with such a problem, we have leverage and we may package the loan differently and offer the opportunity of postponing certain payments or making balloon payments in later part of the loan. But they will have to repay the loan within the specified time period. It will also depend on how genuine the case is."