More than 50% of the population now relies on loans as a key financial instrument in this cutthroat economy. Loans are a choice that can assist one in obtaining a number of things, whether it be for an immediate financial need or the desire to purchase some indulgences. Loans are becoming more accessible to the general public and more affordable. Therefore they frequently apply for them even when there isn't an immediate need. However, a recent survey revealed that a significant portion of the population is currently struggling with the debt trap.
It takes a while to discover that most borrowers are unaware
that they are falling deeper into the debt trap, which is a very significant
problem. Therefore, in order to be financially sound, one needs to be aware of
the warning signs that indicate falling into a debt trap. A debt trap can be
especially deadly because it often goes unreported until the person is already
head-deep in it, at which point they must apply for another loan to pay off the
first one. This article will let you know when the time is right and when
declining a loan will help you avoid falling into debt. But before that, let's
understand what good debt and bad debt are.
What are good debt and bad debt?
A brief description of good versus bad debt is provided below:
Good debt: If your
debt increases your ability to earn income and increase your net worth, it may
be seen as such. The money owed for services supports long-term income growth
and wealth accumulation. Debt like that incurred for education
loans, mortgages, company loans, etc., might be viewed
favourably.
Bad debt: If you
borrowed money to buy a depreciating asset, that debt is bad for you. The best
thing to do is to avoid taking on debt that won't pay off or appreciate in
value. A loan taken out to finance the purchase of a car, clothing,
investments, or debt consolidation is an example of bad debt. Credit
cards and other consumer debt are other factors that have little
impact on your financial situation.
Debt trap signs to look out for Borrowing to Pay for Regular Expenses
For some people, borrowing money is a common way to cover
routine expenses. For example, a personal loan or a loan
against a credit card may seem like a decent alternative when someone is short
on cash at the end of the month and needs to pay a bill. However, do you know?
While it might help you at that moment, paying interest on borrowed funds over
the long run will cost you significantly more than the principal.
Therefore, it is obvious that you are in a debt trap if you find
yourself borrowing money frequently.
Missing EMIs and bill payments
You might have to put off paying some of your bills because of
financial difficulties. Once or a maximum of twice a year is acceptable for
this. You will be assessed fines and late payment fees after that. Once this
process begins, the additional payment you must make may have an impact on your
monthly budget and force you to borrow money. This is another sign that your
money management could want some work; otherwise, the debt cycle could begin.
Therefore, make an effort to pay all of your bills on time each month to avoid
situations like this that could trap you in debt.
You fail to pay your credit card payments in full
This is one of the most prevalent and frequently initial
indications that you are slipping into a financial trap. Only the interest
portion of your total outstanding bill is covered by the minimum payment you
make to credit card providers to roll over your bills. Additionally, if you
consistently only make the minimum payment, it will take you a very long time
to pay off your credit card debt. Credit card interest rates can reach 36% to
40% a year, and it is virtually hard to pay off such a big credit card debt.
Another thing to keep in mind is that even if you pay off 90% of
your credit card payment in one billing cycle, the bank will still charge
interest on the entire balance in the subsequent month, not just the remaining
10%. Therefore, you should pay the whole amount due in one month rather than
the minimal amount payable each month.
How to overcome the debt trap
Identify the issue and analyse it
Your current debt problem can be resolved with the help of a
thorough and rigorous analysis.
What you can do is:
●
Firstly, you must accept that you have a debt
problem.
●
Determine what is driving you to get trapped in
debt.
●
Make a plan to address these issues.
●
Set a spending limit and order your needs
Choose a loan for debt consolidation
Consider merging your high-interest debt by obtaining a
low-interest personal loan from credible lenders such as LazyPay for debt
consolidation rather than paying back various loans at various times throughout
the month. Following debt consolidation, you only have to worry about making
one monthly payment to one lender.
By doing this:
●
You pay your EMIs on time
●
Your debt is paid off faster
●
You save money on interest
●
You restore your financial strength
Conclusion
Debt has a negative impact on your emotional health in addition to being a financial burden. Therefore, you must recognise the indicators of a debt trap to prevent slipping into one. However, it is best to get professional assistance if you find yourself caught in a debt trap.
Comments
Post a Comment