Denice R. Preston
More than half of the population relies on loans in this highly competitive financial world. Loans are the best option for anyone who has an urgent financial need or wants to be able to afford luxuries. Because loans are easy to obtain and there is minimal eligibility requirements, many people will apply for them even if they don’t feel the need. A recent survey found that debt trap is a major problem facing a lot of people these days.
The debt trap is a serious problem. Most borrowers don’t realize they are falling deeper into the trap. To be financially healthy, one must be aware of signs that you may be falling into a debt trap. The dangers of a debt trap are greater when it is not noticed until the person is deep in it. At that point, one applies for another loan to repay the original loan. We can help you identify when it is too late and when to say no to a loan in order to avoid falling into a debt trap.
Signs that you are in a Debt Trap
1. Your EMIs Exceed 50% Of Your Income
Many of us could not resist the lure of low EMI, discounts, and offers. However, these are all marketing strategies that people don’t think about the long-term effect.
If your monthly income exceeds 50% and you have more loans than you can afford, it could be a threat to your long-term financial goals. A debt trap can be created if you pay more than 50% of your income toward EMIs. This can cause financial problems and ruin your financial management. A FOIR of at least 50% can reduce your chances of getting a loan in an emergency. This indicates that you may not be able to repay the loan.
2. Borrowing for your regular expenses
People borrow money to cover their regular expenses. If someone is in financial trouble and needs to pay a bill, a personal loan or loan against a credit card might be an option. What do you know? While it may be beneficial in some cases, the long-term cost of borrowing money can add up and could end up costing you more than the principal.
If you find yourself borrowing money a lot, it’s a sign that you’re in a debt trap.
3. To repay another loan, you can apply for a loan at a higher interest than the previous.
It is important to understand your ability to repay a loan. Sometimes people borrow more than they can repay, making it more difficult to repay the loan. In this instance, defaulting on the EMIs, penalties, and all other charges can lead to a situation where you have no choice but to take out another loan in order to repay the existing loan. This is a sign that you may be in a debt trap. You should be aware of your needs and your repayment ability before you borrow. Check your EMI amount using personal loans EMI calculator. This will allow you to plan your finances.
4. Use Credit Cards to Withdraw Money
You have the option of borrowing cash from your credit card if you’re in financial trouble. It feels so simple that you don’t even have to ask someone for money or apply for a loan. Although it may seem like a simple option, the interest rate on a credit card is high. It starts at 22% and can go up to 34%. You should think twice before withdrawing cash from your credit card. It could lead to debt traps.
5. Missing bill payments and EMIs
Financial pressures may cause you to miss some bills. This is only acceptable once in a while. You will be subject to penalties and late payments charges. The extra payments you make after this point can have a negative impact on your monthly budget and could lead to borrowing money. This could also be a sign that your finances are not being managed well. If this continues, the cycle of debt could begin. To avoid a situation like this, be punctual with your monthly payments. This can lead to a debt trap.
These are signs that you may be in a debt trap. Avoid this situation by being aware and taking the right steps. Once you are in a debt trap, it can be very difficult to get out.
