Avoid getting into a debt trap in New Year; Here is how to manage it

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Published: January 16, 2020 2:02:20 PM

If you see your debts are increasing every month and you are struggling to repay the amount and is just paying up the interest and the minimal amount, know that you are heading for a debt trap.

debt, credit card debt, debt trap, saving, investing, how to save money, debt, how to get out of debt, systematic investment plan, SIP, mutual fundsIf you also have got into debt, there are various ways to manage debt, especially personal debt, and eventually come out of it.

Falling into a debt trap mostly happens unknowingly. However, handling it and getting out of it is the bigger problem that people face. To make availability of credit easy to the mass, banks and NBFCs have been offering various types of credit and instant loans. This also leads to more and more people drowning in credit. With the evolution of digital lending platforms, the products offered by them too have evolved according to the growing needs of a consumer. The Reserve Bank of India (RBI) has also asked NBFCs to adopt better tools to detect liquidity strains early.

With all the sale and discounts that are offered at the starting of the year, most just grab on the opportunity to steal all the good deals and making their big ‘buys’. However, note that you might be entering the new year with debts. If you also have got into debt, there are various ways to manage debt, especially personal debt, and eventually come out of it.

Signs if you are heading towards a debt trap
If more than 40-45 per cent of your monthly income goes in repaying debts, it is a sign that you are heading towards a debt trap. If a large portion of a one’s monthly income is going towards servicing EMIs, they should on priority take control of the situation to avoid falling into a debt trap.

Defaulting in repaying dues
Many people are seen converting their credit card payments into EMIs, after using it for paying their monthly bills or making online transactions using the credit card. These type of spending behaviour is an early sign of an impending debt trap. Experts suggest this is not the right approach, as most people don’t understand the consequences. For instance, if as a borrower, you do not make the repayments on time, the situation can get worse for you. If you see your debts are increasing every month and you are struggling to repay the amount and is just paying up the interest and the minimal amount, know that you are heading for a debt trap.

Credit Card Takeover Loan
Credit Card Takeover loans are like personal loans which are available at around 1.5 per cent monthly interest as compared to 3-4 per cent monthly interest applicable on outstanding credit card payments. With a credit card takeover loan, the cardholder will be free of long-pending credit card debt immediately, and it will also help him/her to build financial discipline and a good credit score.
Note that, one should not start reusing their cards immediately after taking another loan to pay off the credit card dues. Or else, the whole purpose is defeated and the cardholder will end up digging themselves into a deeper debt hole.

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