Getting out of debt and dealing with lenders

Neha owes ₹2,30,000 on a credit card, a personal loan and a phone bought on EMI, and has ₹12,000 a month to repay them. Paying each debt only its minimum would take 48 months and ₹1,01,738 of interest; the same ₹12,000, aimed at one debt at a time, clears all three in 24 months for ₹50,844.

This lesson builds that plan two ways, prices a consolidation loan and a balance transfer against it, follows a missed EMI day by day, sets out what lenders, recovery agents and lending apps may not do, and shows what a restructuring, a settlement or a write-off leaves on your record. It is education only: Neha, her debts and every offer below are invented, and no lender, product or app is recommended.

Pay every minimum, then aim all the rest at one debt

Neha’s three debts, with the minimum each must be paid every month:

The minimums come to ₹9,142, so ₹2,858 of her ₹12,000 is left over every month. A plan for several debts has two rules. Every debt gets its minimum every month, so none is ever late. Everything left over goes to one debt at a time, and when that debt is cleared, the money it took rolls onto the next one: the monthly total stays ₹12,000 until the last debt is gone. Step through the plan and watch where each month’s money goes:

The program runs the plan month by month, beside paying only the minimums, by the method of MySmartCoPilot’s debt payoff calculator. Its interest is before GST, which a card adds at 18 % on its interest:

"""Three invented debts, ₹12,000 a month, and the order in which to aim the money: avalanche and snowball.

Neha's debts: a credit card of ₹60,000 at 42 % a year (3.5 % a month) with a minimum of ₹3,000; a personal loan of
₹1,50,000 at 16 % for 48 months; a phone bought on EMI, ₹20,000 at 24 % for 12 months, both loans with their EMIs to
the paisa. Each month every debt is charged its interest (the yearly rate ÷ 12) and paid its minimum; the rest of the
₹12,000, and the minimum of every debt already cleared, goes to one debt at a time: the highest rate first (avalanche)
or the smallest balance first (snowball). The card's minimum is held at ₹3,000, as an EMI is; a real minimum due falls
with the balance. This is the method of MySmartCoPilot's debt payoff calculator. Interest is before GST, which a card
adds on its interest. The last lines try every other order, and the avalanche without the roll-over.
"""

from decimal import ROUND_HALF_UP, Decimal, getcontext
from itertools import permutations

getcontext().prec = 34


def emi(loan, rate, months):
    i = rate / 1200
    growth = (1 + i) ** months
    return loan * i * growth / (growth - 1)


DEBTS = (
    ("Card", Decimal(60000), Decimal(42), Decimal(3000)),
    ("Personal loan", Decimal(150000), Decimal(16), emi(Decimal(150000), Decimal(16), 48)),
    ("Phone EMI", Decimal(20000), Decimal(24), emi(Decimal(20000), Decimal(24), 12)),
)
BUDGET = Decimal(12000)
EXTRA = BUDGET - sum(d[3] for d in DEBTS)
EPS = Decimal("0.005")


def inr(amount):
    value = Decimal(amount).quantize(Decimal("1"), rounding=ROUND_HALF_UP)
    whole = str(abs(value))
    head, tail = whole[:-3], whole[-3:]
    groups = []
    while len(head) > 2:
        groups.insert(0, head[-2:])
        head = head[:-2]
    if head:
        groups.insert(0, head)
    return "₹" + (",".join(groups + [tail]) if groups else tail)


def plan(order, rollover=True):
    """Months, interest, the month each debt is cleared and each month's payments. order None pays only the
    minimums; without the roll-over, a cleared debt's minimum is no longer paid to the others."""
    owed = [d[1] for d in DEBTS]
    cleared = [None] * len(DEBTS)
    month, interest, splits = 0, Decimal(0), []
    while any(b > EPS for b in owed):
        month += 1
        for k, (_, _, rate, _) in enumerate(DEBTS):
            if owed[k] > EPS:
                charge = owed[k] * rate / 1200
                owed[k] += charge
                interest += charge
        pay = [min(DEBTS[k][3], owed[k]) if owed[k] > EPS else Decimal(0) for k in range(len(DEBTS))]
        if order:
            left = BUDGET - sum(pay) if rollover else EXTRA
            for k in sorted((k for k in range(len(DEBTS)) if owed[k] > EPS), key=order(owed)):
                extra = min(left, owed[k] - pay[k])
                pay[k] += extra
                left -= extra
        splits.append(pay)
        for k in range(len(DEBTS)):
            owed[k] = max(owed[k] - pay[k], Decimal(0))
            if owed[k] <= EPS and cleared[k] is None:
                owed[k] = Decimal(0)
                cleared[k] = month
    return month, interest, cleared, splits


def avalanche(owed):
    return lambda k: (-DEBTS[k][2], owed[k], k)


def snowball(owed):
    return lambda k: (owed[k], -DEBTS[k][2], k)


def fixed(sequence):
    return lambda owed: sequence.index


print(f"Owed {inr(sum(d[1] for d in DEBTS))}; minimums {inr(BUDGET - EXTRA)} a month; budget {inr(BUDGET)}")
PLANS = (
    ("Avalanche (highest rate first)", avalanche),
    ("Snowball (smallest balance first)", snowball),
    ("Minimums only", None),
)
for name, order in PLANS:
    months, interest, cleared, splits = plan(order)
    print()
    print(f"{name}: debt-free in {months} months, interest {inr(interest)}")
    for start in [1] + sorted({c + 1 for c in cleared if c < months}):
        shares = ", ".join(f"{DEBTS[k][0]} {inr(p)}" for k, p in enumerate(splits[start - 1]) if p > EPS)
        print(f"  from month {start}: {shares}")
    by_month = sorted(range(len(DEBTS)), key=lambda k: cleared[k])
    print("  cleared: " + ", ".join(f"{DEBTS[k][0]} in month {cleared[k]}" for k in by_month))
print()
print("Every order of the three debts, with the roll-over:")
for sequence in permutations(range(len(DEBTS))):
    months, interest, _, _ = plan(fixed(list(sequence)))
    print(f"  {' > '.join(DEBTS[k][0] for k in sequence):<34} {months} months, interest {inr(interest)}")
months, interest, _, _ = plan(avalanche, rollover=False)
print(f"Avalanche without the roll-over (only {inr(EXTRA)} extra, freed minimums spent):")
print(f"  {months} months, interest {inr(interest)}")

Owed ₹2,30,000; minimums ₹9,142 a month; budget ₹12,000

Avalanche (highest rate first): debt-free in 24 months, interest ₹50,844
  from month 1: Card ₹5,858, Personal loan ₹4,251, Phone EMI ₹1,891
  from month 13: Card ₹5,309, Personal loan ₹6,691
  from month 14: Personal loan ₹12,000
  cleared: Phone EMI in month 12, Card in month 13, Personal loan in month 24

Snowball (smallest balance first): debt-free in 24 months, interest ₹52,563
  from month 1: Card ₹3,000, Personal loan ₹4,251, Phone EMI ₹4,749
  from month 6: Card ₹7,749, Personal loan ₹4,251
  from month 14: Personal loan ₹12,000
  cleared: Phone EMI in month 5, Card in month 13, Personal loan in month 24

Minimums only: debt-free in 48 months, interest ₹1,01,738
  from month 1: Card ₹3,000, Personal loan ₹4,251, Phone EMI ₹1,891
  from month 13: Card ₹3,000, Personal loan ₹4,251
  from month 36: Personal loan ₹4,251
  cleared: Phone EMI in month 12, Card in month 35, Personal loan in month 48

Every order of the three debts, with the roll-over:
  Card > Personal loan > Phone EMI   24 months, interest ₹50,844
  Card > Phone EMI > Personal loan   24 months, interest ₹50,844
  Personal loan > Card > Phone EMI   25 months, interest ₹67,306
  Personal loan > Phone EMI > Card   25 months, interest ₹67,306
  Phone EMI > Card > Personal loan   24 months, interest ₹52,563
  Phone EMI > Personal loan > Card   25 months, interest ₹66,595
Avalanche without the roll-over (only ₹2,858 extra, freed minimums spent):
  32 months, interest ₹58,025

Paid only the minimums, the card lasts until month 35 and the personal loan until month 48, at ₹1,01,738 of interest. The spare ₹2,858 aimed at the card halves both. The roll-over does part of that: the last lines of the output keep the extra at ₹2,858 and spend each freed minimum instead, and the same plan then takes 32 months and ₹58,025.

The program holds the card’s minimum at ₹3,000, as an EMI is held. A real card’s minimum due falls as its balance falls, which, as the lesson on credit cards showed, stretches repayment over years; a fixed payment does not.

Avalanche pays the least interest; snowball clears a debt first

Which debt gets the spare money is the one choice left, and two orders are common. The avalanchedebt avalanche: A way to repay several debts: pay every minimum, put all the money left over on the debt with the highest interest rate, and move to the next highest when it is cleared. Of all the orders, it pays the least interest. aims it at the highest rate first, Neha’s card at 42 %. The snowballdebt snowball: A way to repay several debts: pay every minimum and put all the money left over on the smallest balance first, then on the next smallest. It clears a first debt sooner, usually for some extra interest. aims it at the smallest balance first, her ₹20,000 phone. The program above runs both, and its last block tries every order of the three debts.

The avalanche costs ₹50,844, the least of all six orders. The snowball costs ₹52,563, ₹1,719 more, and finishes in the same month 24; what it buys is a first debt cleared in month 5 instead of month 12. Aiming the spare money at the personal loan, the cheapest debt, is the worst choice: ₹67,306 of interest and a month longer. The reason is simple: every rupee repaid early stops that debt’s interest from that month, and a rupee off the card stops 3.5 % a month while a rupee off the personal loan stops only 1.33 %.

The gap between the two methods is small here because the smallest debt is also a dear one, at 24 %; it grows when the smallest debt is the cheapest. The snowball’s case is the habit: a debt cleared early can keep a plan going for someone who has given one up before. Answer three questions about your own debts and months:

In short: with money to spare after the minimums, the avalanche is the cheapest order and the snowball costs a little more for an early win; with nothing to spare, neither plan can start, and the last section of this lesson is the place to begin.

A new loan must beat the plan, with its fee and its months counted

Offers to swap many debts for one arrive at exactly this point. A consolidation loanconsolidation loan: A new loan taken to repay several debts at once, leaving one EMI. It saves money only if its interest and fees, over the months it runs, cost less than repaying the old debts would. repays all three debts and leaves one EMI; a balance transferbalance transfer: Moving a credit card balance to another card or lender at a lower rate for a set period, usually for a fee. Whatever is still owed when the period ends is charged the full rate again. moves the card’s balance to a card that charges less for a while. Neha has two invented offers: a loan of ₹2,30,000 at 14 % with a fee of 2 % plus GST, and a card that charges 1 % a month for six months, for a fee of 1.5 % plus GST. The program prices both against the avalanche plan’s ₹50,844:

"""Two invented offers to replace Neha's debts, priced against the avalanche plan's ₹50,844 of interest (payoff.py).

A consolidation loan of ₹2,30,000 at 14 % a year, with a processing fee of 2 % and GST at 18 % on the fee, taken over
24 months or over 48, or repaid with the whole ₹12,000 a month; its APR is the monthly rate at which the money
received, the loan less the fee, equals the EMIs, times 12. And a balance transfer of the card alone: ₹60,000 moved
to a card that charges 1 % a month for six months, then 3.5 % a month on whatever is left, for a fee of 1.5 % plus
GST; it is paid ₹5,858 a month, what the avalanche plan pays the card, against the same payments on the old card.
Interest is the rate on what is still owed, each month; card interest also carries GST at 18 %, shown last.
"""

from decimal import ROUND_HALF_UP, Decimal, getcontext

getcontext().prec = 34
OWED, RATE, FEE_SHARE, GST = Decimal(230000), Decimal(14), Decimal("0.02"), Decimal("0.18")
AVALANCHE = Decimal(50844)
CARD, CARD_PAY = Decimal(60000), Decimal(5858)
OLD, PROMO, PROMO_MONTHS, BT_FEE = Decimal("0.035"), Decimal("0.01"), 6, Decimal("0.015")


def inr(amount):
    value = Decimal(amount).quantize(Decimal("1"), rounding=ROUND_HALF_UP)
    whole = str(abs(value))
    head, tail = whole[:-3], whole[-3:]
    groups = []
    while len(head) > 2:
        groups.insert(0, head[-2:])
        head = head[:-2]
    if head:
        groups.insert(0, head)
    return ("−₹" if value < 0 else "₹") + (",".join(groups + [tail]) if groups else tail)


def emi(loan, rate, months):
    i = rate / 1200
    growth = (1 + i) ** months
    return loan * i * growth / (growth - 1)


def apr(received, instalment, months):
    """The yearly rate, in per cent, at which the instalments are worth what was received (bisection)."""
    lo, hi = Decimal(0), Decimal(1)
    for _ in range(120):
        mid = (lo + hi) / 2
        if instalment * (1 - (1 + mid) ** -months) / mid > received:
            lo = mid
        else:
            hi = mid
    return ((lo + hi) / 2 * 1200).quantize(Decimal("0.01"), rounding=ROUND_HALF_UP)


def at_budget(loan, rate, budget):
    """Months and interest when the whole budget goes into the loan each month."""
    owed, month, interest = loan, 0, Decimal(0)
    while owed > 0:
        month += 1
        charge = owed * rate / 1200
        interest += charge
        owed = max(owed + charge - budget, Decimal(0))
    return month, interest


def card_interest(rate_for_month):
    owed, month, interest, left_at_promo_end = CARD, 0, Decimal(0), None
    while owed > 0:
        month += 1
        charge = owed * rate_for_month(month)
        interest += charge
        owed = max(owed + charge - CARD_PAY, Decimal(0))
        if month == PROMO_MONTHS:
            left_at_promo_end = owed
    return month, interest, left_at_promo_end


fee = OWED * FEE_SHARE * (1 + GST)
print(f"Consolidation loan of {inr(OWED)} at {RATE} %, fee {inr(fee)} with GST:")
for months in (24, 48):
    pay = emi(OWED, RATE, months)
    cost = pay * months - OWED + fee
    verdict = "saves" if cost < AVALANCHE else "costs"
    rate = apr(OWED - fee, pay, months)
    print(f"  over {months} months: EMI {inr(pay)}, APR {rate} %, interest and fee {inr(cost)};")
    print(f"    {verdict} {inr(abs(AVALANCHE - cost))} against the avalanche plan")
months, interest = at_budget(OWED, RATE, Decimal(12000))
print(f"  paying the whole ₹12,000 a month: cleared in {months} months, interest and fee {inr(interest + fee)};")
print(f"    saves {inr(AVALANCHE - interest - fee)} against the avalanche plan")
print()
old_months, old_interest, _ = card_interest(lambda m: OLD)
new_months, new_interest, left = card_interest(lambda m: PROMO if m <= PROMO_MONTHS else OLD)
bt_fee = CARD * BT_FEE * (1 + GST)
print(f"Balance transfer of the {inr(CARD)} card, paying {inr(CARD_PAY)} a month:")
print(f"  old card: cleared in {old_months} months, interest {inr(old_interest)}")
print(f"  new card: {inr(left)} still owed when the 1 % months end; cleared in {new_months} months,")
print(f"    interest {inr(new_interest)} and fee {inr(bt_fee)}: {inr(new_interest + bt_fee)}")
print(f"  saving {inr(old_interest - new_interest - bt_fee)}, as long as nothing new is spent on either card")
old_taxed, new_taxed = old_interest * (1 + GST), new_interest * (1 + GST) + bt_fee
print(f"  with GST on the interest too: {inr(old_taxed)} against {inr(new_taxed)}, saving {inr(old_taxed - new_taxed)}")

Consolidation loan of ₹2,30,000 at 14 %, fee ₹5,428 with GST:
  over 24 months: EMI ₹11,043, APR 16.44 %, interest and fee ₹40,459;
    saves ₹10,385 against the avalanche plan
  over 48 months: EMI ₹6,285, APR 15.31 %, interest and fee ₹77,112;
    costs ₹26,268 against the avalanche plan
  paying the whole ₹12,000 a month: cleared in 22 months, interest and fee ₹37,287;
    saves ₹13,557 against the avalanche plan

Balance transfer of the ₹60,000 card, paying ₹5,858 a month:
  old card: cleared in 13 months, interest ₹15,601
  new card: ₹27,653 still owed when the 1 % months end; cleared in 12 months,
    interest ₹5,917 and fee ₹1,062: ₹6,979
  saving ₹8,622, as long as nothing new is spent on either card
  with GST on the interest too: ₹18,409 against ₹8,045, saving ₹10,365

Over 24 months the loan costs ₹40,459 in interest and fee and saves ₹10,385. Paid the whole ₹12,000 a month instead of its ₹11,043 EMI, it is cleared in 22 months and saves ₹13,557. Over 48 months the same loan has a lower EMI, ₹6,285, and even a lower APR, 15.31 % against 16.44 %, yet costs ₹26,268 more than the plan, because interest runs for twice as long. Set the model’s term to 48 months and watch the interest:

At 24 months the model shows ₹11,043 a month and ₹35,031 of interest; at 48 months, ₹6,285 and ₹71,684, with the fee of ₹5,428 on top in either case. The APR in the new loan’s Key Facts Statement, 16.44 % over 24 months, is the number to hold against the debts it replaces: far below the card’s 42 % and the phone’s 24 %, but above the personal loan’s 16 %, so the whole saving comes from the card and the phone.

The balance transfer works the same way on a smaller scale. Paying the same ₹5,858 a month, the old card would be cleared in 13 months for ₹15,601 of interest, the new one in 12 months for ₹5,917 and a fee of ₹1,062: a saving of ₹8,622, or ₹10,365 once GST on the interest is counted. But ₹27,653 is still owed when the 1 % months end, and from then on it costs 3.5 % a month again. Either swap fails if the old cards are used again, because a card with its limit still open can fill up while the new loan is being repaid.

A missed EMI is counted in days, and after 90 it is a bad loan

Plans fail when income stops, and the first missed EMI starts a clock that the RBI’s rules spell out. A payment not made by the lender’s day-end process on its due date is overdue from that date. For up to 90 days the loan is a special mention accountspecial mention account (SMA): A loan with a payment overdue for up to 90 days, tagged SMA-0 (up to 30 days), SMA-1 (more than 30 and up to 60) or SMA-2 (more than 60 and up to 90) as an early sign of stress., tagged by how long the payment has been overdue, and once it is overdue for more than 90 days it is a non-performing assetnon-performing asset (NPA): A loan with a payment overdue for more than 90 days. It returns to the standard category only when all the overdue interest and principal is paid., a bad loan. The rule covers banks, NBFCs and co-operative banks, and retail loans as much as any other. Walk through one missed EMI of Neha’s personal loan:

The program applies the rule to the example in the RBI’s own clarification, reproducing its dates, and then to an EMI of Neha’s:

"""When a missed payment is tagged SMA-1, SMA-2 and a non-performing asset (NPA), by the RBI's rule.

The RBI's clarifications on asset classification (12 November 2021): a payment not made by the day-end process of its
due date is overdue from that date; the account is a special mention account while the overdue is up to 90 days
(SMA-0 up to 30, SMA-1 more than 30 and up to 60, SMA-2 more than 60 and up to 90), and an NPA once it is overdue for
more than 90 days. Each tag falls at the day-end process of the calendar date it is reached. The program checks the
rule against the circular's own example, then applies it to Neha's invented EMI, due on 5 January.
"""

from datetime import date, timedelta

TAGS = (("overdue, SMA-0", 0), ("SMA-1", 30), ("SMA-2", 60), ("NPA", 90))


def tag_dates(due):
    return [(name, due + timedelta(days=days)) for name, days in TAGS]


def show(day):
    return f"{day.day} {day:%B %Y}"


circular = tag_dates(date(2021, 3, 31))
stated = [date(2021, 3, 31), date(2021, 4, 30), date(2021, 5, 30), date(2021, 6, 29)]
assert [d for _, d in circular] == stated, "the rule does not reproduce the circular's example"
print("The circular's example, a payment due on 31 March 2021:")
for name, day in circular:
    print(f"  {name:<15} at the day-end of {show(day)}")
print("  (the dates the circular states: the rule reproduces all four)")
print()
print("Neha's EMI of ₹4,251, due on 5 January 2027 and not paid:")
for name, day in tag_dates(date(2027, 1, 5)):
    print(f"  {name:<15} at the day-end of {show(day)}")
print("  The account is standard again only when every overdue instalment and its interest is paid.")

The circular's example, a payment due on 31 March 2021:
  overdue, SMA-0  at the day-end of 31 March 2021
  SMA-1           at the day-end of 30 April 2021
  SMA-2           at the day-end of 30 May 2021
  NPA             at the day-end of 29 June 2021
  (the dates the circular states: the rule reproduces all four)

Neha's EMI of ₹4,251, due on 5 January 2027 and not paid:
  overdue, SMA-0  at the day-end of 5 January 2027
  SMA-1           at the day-end of 4 February 2027
  SMA-2           at the day-end of 6 March 2027
  NPA             at the day-end of 5 April 2027
  The account is standard again only when every overdue instalment and its interest is paid.

Three rules decide what the missed payment costs on the way. A penalty for paying a loan late is a penal chargepenal charges: A charge for breaking a material term of a loan, such as paying late. RBI rules forbid adding it to the interest rate as penal interest or charging interest on it, and require it to be disclosed in the KFS. More in “How loans work: EMI, APR and the KFS”: it must be disclosed in the Key Facts Statement, it is never added to the interest rate, and no interest is charged on it. A credit card follows its own rules instead: its issuer may charge a late fee, or report the card as past due, only once it is more than three days past due. And the record sees it all: lenders send days past duedays past due: How many days a payment has been overdue, counted from its due date. Lenders report it to the credit information companies, and it stays in the account's repayment history. More in “Credit scores and credit reports” four times a month and must alert you when they report them, so a missed EMI reaches your credit reportcredit report: The record a credit information company keeps of your loans and cards, built from what lenders send: each account with its lender, amount, balance and repayment history, and the enquiries made on it. More in “Credit scores and credit reports” within days.

The way back is harder than the way down. A non-performing loan becomes standard again only when all its arrears of interest and principal are paid; paying one missed EMI out of three is not enough. That is why the call to the lender, in the last section, belongs before the first missed EMI, not after the third.

Recovery agents and lending apps follow rules you can quote

An overdue loan will be chased, and the chasing has rules. The RBI’s circular on lenders that employ recovery agentsrecovery agent: A person or firm that a lender employs to collect overdue payments. The RBI's rules forbid lenders and their agents to threaten, harass or shame a borrower, or to call before 8 a.m. or after 7 p.m. covers banks, NBFCs, co-operative banks and asset reconstruction companies, and makes each lender ensure that, in collecting a debt, it and its agents do not:

• intimidate or harass anyone, by words or by force;
• shame a borrower in public, or intrude on the privacy of the borrower’s family, referees or friends;
• send inappropriate messages by phone or on social media, or make threatening or anonymous calls;
• call the borrower persistently, or before 8:00 a.m. or after 7:00 p.m., to recover an overdue loan;
• make false or misleading claims.

A loan taken through a digital lending appdigital lending app: A mobile app or website through which a lender, or a service provider working for it, offers and runs loans. The RBI's website lists the apps that the lenders it regulates report using. carries more rules, in the RBI’s directions on digital lending. The app may not read your files and media, your contacts or your call logs; the only exception is one-time access to the camera, microphone or location for KYC, with your permission. When a recovery agent is put on your loan, the agent’s details must reach you by e-mail or SMS before the agent contacts you. The loan is paid into your own bank account, not to the app or its partners, except in the few cases the rules name, such as a loan for a set purchase paid straight to the seller. Lenders must report every app they use, and the RBI’s website publishes the list as they report it: an app on it is not endorsed by the RBI, and one missing from it is not an app any RBI-regulated lender has reported.

When the rules are broken, the complaint goes to the lender first, because it answers for its agents, and then to the RBI Ombudsmanombudsman: An official who settles customers' complaints against firms in one sector at no fee, such as the RBI Ombudsman for banks or the Insurance Ombudsman. The complaint must go to the firm first. More in “Who regulates your money in India”. Step through Neha’s:

Keep the record from the first call: the time, the number, the name and the words used. A threat of violence or a demand for money you do not owe is not a service complaint but a crime, for the police or cybercrime.gov.in at once, and for the helpline 1930 if money has been taken.

When you cannot pay: restructuring, settlement and write-off

If income stops, the cheapest moment to act is before an EMI is missed. A lender may agree to a restructuringrestructuring: A change in a loan's terms that a lender grants because the borrower is in financial difficulty, such as a longer tenor or smaller instalments for a while.: new terms for a borrower in financial difficulty, such as smaller instalments for a while and a longer tenor. Follow Neha’s call to her lender:

A loan can end in four ways, and only one of them is the loan as it was signed. What each costs, and what the RBI’s rules add to it:

A compromise settlementcompromise settlement: An agreement in which a lender accepts less than the full dues, paid in cash, and gives up the rest of its claim. The same lender must then wait at least 12 months before lending to that borrower again, except for farm loans. can look like a win, because part of the debt goes. It is the lender accepting less, not a clean record: the account’s months overdue stay in its history, and the lender that settled keeps a cooling period of at least 12 months, longer if its board’s policy says so, before it lends to you again. A technical write-offtechnical write-off: A bad loan that a lender writes off in its books for accounting only. Nothing is forgiven: the borrower still owes it, and the lender may still recover it. is not even that: the debt stays yours.

If a lender reports any of these wrongly, the dispute process of the lesson on credit reports applies, with its 30 days and its ₹100 for each day of delay.

Practise: plan a payoff, price an offer, know your rights

These questions cover all six ideas, from the roll-over to a settlement, and a session starts with the idea you have answered least well. Money is in rupees, and interest is before GST unless a question says otherwise:

Interview questions

Warm-up (fresher): Avalanche or snowball: which pays less interest, and why might someone choose the other?

Both pay every debt its minimum and put all the money left over on one debt at a time, rolling each cleared debt’s payment onto the next. The avalanche aims at the highest rate first, so every extra rupee stops the dearest interest, and with a fixed monthly budget it pays the least interest of any order. The snowball aims at the smallest balance first, which clears a first debt sooner. On invented debts of ₹2,30,000, a card at 42 %, a personal loan at 16 % and a phone EMI at 24 %, repaid with ₹12,000 a month, the avalanche costs ₹50,844 and the snowball ₹52,563, both finishing in 24 months; the snowball clears the phone in month 5 instead of month 12. Someone who has given up a plan before may pay that ₹1,719 for the early win.

Warm-up (fresher): What is the difference between settling a loan and repaying it?

Repaying means paying everything owed, with any overdue interest, after which the account is closed; its history of payments, late ones included, stays on the credit report. A compromise settlement is a negotiated deal in which the lender accepts less than the dues, in cash, and gives up the rest of its claim. Under the RBI’s framework the lender that settled must keep a cooling period of at least 12 months before lending to that borrower again, except for farm credit, and the months the loan was overdue stay in its history. A technical write-off is different again: the lender takes a bad loan off its books for accounting only, the borrower still owes it, and it may still be recovered.

Key takeaways

• Pay every minimum, put everything left over on one debt and roll each cleared debt’s money onto the next: Neha’s ₹12,000 a month clears ₹2,30,000 in 24 months for ₹50,844, against 48 months and ₹1,01,738 for the minimums alone.
• The avalanche, highest rate first, pays the least interest of any order; the snowball, smallest balance first, cost ₹1,719 more here and cleared a first debt in month 5 instead of month 12.
• A consolidation loan or a balance transfer helps only if its interest and fees over the months it runs cost less than the plan: over 24 months Neha’s offer saved ₹10,385, and over 48 months it cost ₹26,268 more.
• A missed EMI makes the loan SMA-1 after more than 30 days, SMA-2 after more than 60 and a non-performing asset after more than 90, and only paying every arrear makes it standard again.
• Lenders and their agents may not threaten, shame, intrude on your family or call before 8 a.m. or after 7 p.m., and lending apps may not read your contacts; complain to the lender, then to the RBI Ombudsman after 30 days.
• A restructuring keeps the whole debt on new terms and is classified as non-performing for a time, a settlement gives up part of it but keeps the same lender away for at least 12 months, and a technical write-off forgives nothing.