In this competitive world, loans have become an important financial tool on which more than 50% of the population depends. Whether it be some urgent financial requirement or the willingness to avail some luxuries, loans are the option which can help one to get all these. Easy availability, minimum eligibility requirement is making loans more affordable to the common masses and hence they often go for it even when there is no urgency. According to a recent survey Debt trap is a serious issue which a large number of the population is facing these days.
Debt Trap is a very serious issue and it is often slow to realize that most of the borrowers are not even aware that they are getting deeper into this trap. Hence, to be financially fit one should be aware of the signs which show you are getting into a debt trap. A debt trap can prove more dangerous as it goes unnoticed till the person is neck deep in it and at that point of time one goes again for a loan to repay the previous loan. We are here to help you and indicate you when it’s a high time, and when you should say No to loan to avoid a Debt Trap!
Signs you are into a Debt Trap
1. Your EMIs Exceed 50% of your Income
Offers, Discounts, Low EMI sounds very tempting and many of us couldn’t resist this. But all these are marketing strategies and people without thinking about long term effect goes for it.
If you have more number of loans and the EMIs exceed 50% of the monthly income then it is a clear threat for your loan term financial goals. Paying more than 50% of your income towards EMIs can ruin all your financial management for a long time and can lead you to a debt trap. Also a FOIR of 50% and above reduce the chances of you getting a loan in times of emergency as it indicates that you might not be capable of repayment.
2. Taking Loans for your Regular Expenses
Some people often borrow money to meet their regular expenses. Example when someone is short of money at month end and they need to pay some bill, at that point of time going for a personal loan or a loan against credit card seems to be a good option. But do you know? It may help you that point but in the long term paying the interest for the borrowed money is much more and it can cost you even more than the principal amount.
Hence when you find yourself borrowing money most often then it is a clear indication that you are getting into a debt trap.
3. Availing a Loan to Repay Another Loan at an Interest Higher than Previous
When you go for a loan it is very important to know your repaying capacity. In some cases, people borrow more than their repaying capacity and it becomes difficult for them to repay the loan when they borrow more. Defaulting the EMIs, penalties and all starts in this case and a time comes when you are left with no other option than going for yet another loan to repay the existing loan. If this happens with you it is an indication that you are already into a debt trap. Be aware and borrow wisely according to your need and repayment capacity. Before opting a personal loan check your EMI amount with personal loan EMI calculator. Doing this will help you to plan your finance.
4. Using Credit Cards to Withdraw Money
When you are short of money taking out cash from your credit card is an easy option available to you. You feel like it is so easy, you don’t have to go some were and ask for money with someone or you don’t need to apply for a loan even. It may sound like an easy option but don’t forget that the interest rate of a credit card is always high which starts at 22% and goes up to 34%. So when you withdraw cash from a credit card think twice as it may lead you to a debt trap.
5. Missing Bill Payments and EMIs
Due to financial crunches, it may force you to skip some of your bill payments. This is acceptable once or at most twice a year. Beyond that, you will be charged penalties and late payment charges. Once this starts the extra payment which you have to make can affect your monthly budget which can end up with borrowing money. This is also an indication that you are not managing your finances well and if not improved the circle of debt may start. Hence, try to be timely with all your monthly payments to avoid situation like this which can lead to a debt trap.
These signs are a clear indication that you are into a debt trap. To avoid such condition be aware and act wisely because once you get into a debt tarp it is very difficult to come out.