Buy now, pay later - a bait all of us have been lured by sometime or the other. Even more exciting are shopping schemes that allow you to pay in EMIs that are 10 times lower than the MRP of the product you buy. These schemes make our shopping trips easy, but there is a point where they tip from convenience to compulsion.

Trap terrain. Look at Dilip Penkar (name changed), who has a monthly income of Rs 6,000. Lured by easy finance, he ended up borrowing Rs 700,000 from six different banks through his credit card and personal loans. His disposable income after meeting living expenses is now only Rs 3,000. At the same time, EMIs on personal loans amount to Rs 11,610, and credit card dues total Rs 347,000.

This is just one case from an estimated 650,000 credit card defaulters of MasterCard alone in 2004. Surely, the figure would be much more today. The outstanding credit in India on account of just personal loans is about Rs 400,000 crore at present, and is likely to grow.

Effortless credit has made falling into a debt trap easy. Getting out of it is the biggest challenge that many people are facing today and is a life-altering experience.

Vinod Raut (name changed) was lured into using credit cards, just like many others. "I had a credit limit of Rs 30,000 and ended up using Rs 67,900," he says. His outstanding amount had reached close to Rs 180,000, out of which he has managed to pay up Rs 94,670. However, with a monthly income of only Rs 5,000, there seems to be little help and lots of trouble.  

1. Income less than EMI? You are in a debt trap. Go to 2.
2. Rework credit card debt to personal loan. Else, go to 3.
3. Go to a debt counsellor like Abhay (www.bankofindia.com/home/abhay.asp)

Helplines. Over-leveraged people can do what Raut did -- contact a debt counselling centre. The outfit Raut approached was Abhay, one of the first credit counselling centres in India. The counsellor asked his bank to reduce the loan amount.

"Raut's earnings will never match his EMIs," said V N Kulkarni, DGM (retired), Bank of India, one of the persons handling Abhay in Mumbai. "And his outstanding amount will keep multiplying. Someone has to intervene, else no one would benefit." The debt he had run up had severely affected Raut's mental balance. The counsellor's help has improved matters.

Debt management. Abhay was the initiative of M Bala Chandran, chairman of Bank of India, and is a place where any financially distressed person can seek help. "We formulate strategies to help those in debt or facing bankruptcy to cope with their debt problems," says Kulkarni.

Their first and foremost advice to debt-ridden persons is that they should swap all their high cost debts with low cost ones. They also try to bring about a settlement with the concerned banks.

"We either request the banks to reduce the rate of interest, or give more time to the customer so that he can earn sufficient money and then pay off his debt," says Kulkarni. "We also suggest ways in which our clients can increase their income. Above all, we are trying to exercise debt management, which has, so far, not been practised in our country."

"The concept of shared database among banks has simplified debt management. The database that we have can help banks decide how much loan to give, and whether the loan should exceed a certain amount," says S. Santhanakrishnan, chairman of Credit Information Bureau (India) Limited. There is a systemised way of calculating the credit worthiness of each individual and loans are provided on the basis of this score.

Banking faultlines. "In our country, most people who take loans and use credit cards are not educated about their costs," says Kulkarni. In Raut's case, only half his outstanding amount is the interest component. The remaining includes additional charges like fees for not paying on time and for drawing over the limit. "The fact that extra fees would be charged if they draw above their limit is not highlighted to customers. Nor are they denied over-withdrawals," says Kulkarni.

Unlike Raut, some people suffer not because of their own mistakes, but due to faulty banking practices. Take the case of Ranjeet Kale (name changed), 60, who had taken a loan of Rs 122,000 from an international bank and was regularly paying the EMIs. One day he realised that the statement for the loan taken and outstanding dues not only showed the details of the loan he had taken, but also for one which he hadn't.

"I tried to contact every section of the bank to get the error rectified. The amount I ended up paying was far more than what I was supposed to pay," says Kale. He had paid Rs 183,000 already. "After a while, they stopped taking my calls. I didn't know what to do. The bank was not only holding my money, but also constantly asking me to pay bigger sums as the loan was multiplying due to the interest cost."

Kale approached Abhay, which intervened and sent letters to the bank. Realising its mistake, the bank has discontinued the second loan and also returned Rs 10,000. Understandably, Kale is still not happy and wants his full amount back.

Other options. Going directly to the consumer court is another way of getting your complaints redressed. However, there is a lot more at stake here. Rohini Pandit, a lawyer in the consumer court, says that at times the compensation one gets from the court does not even add up to the legal fees and many other expenses one may incur.

The Banking Ombudsman is another place where your grievances can be addressed, but many feel chances are rare as the panel which solves the cases has people drawn from banks and insurance companies.

Abhay deals with cases free of cost and is entirely funded by Bank of India. It has centres in Mumbai, Chennai and Wardha. "We are handling 120 cases in Mumbai, 71 in Chennai and 259 in Wardha. There is a huge difference between urban and rural debts. A different set of people handles each situation," says Kulkarni.

Abhay is a small centre, but is hoping to expand soon. It is also planning to conduct seminars and create awareness among people on financial planning.

ICICI Bank has plans to launch a counselling centre on similar lines, which will be called Disha Financial Counselling. But, it would not take up customer complaints. "We will not get into the settlement mode, but will try our level best to educate our clients," says B. Madhivanan, general manager (customer service), ICICI Bank. The services will be free and clients will not need to be ICICI Bank account holders.

So, the next time you see an easy loan deal, think twice. Things that look too good to be true are often just that.