Stuck in a debt trap? Here is how to ease the burden

By: |
December 17, 2020 1:28 PM

After using a credit card for paying monthly bills or making online transactions, and then converting the dues into EMIs, these types of spending behavior is an early sign of an impending debt trap: Experts

debt, credit card, asset allocation, asset allocation strategy, rebalancing portfolio, asset mix, mutual funds, asset classes, equity, debt, cash equivalents, gold, festive overspending, how to regain control of your finances, credit card debt, Tighten budget, Save first, spend later, festive spendsThe RBI had extended debt restructuring for MSMEs in August till March 31, 2021.

A majority of people fall into a debt trap unknowingly. They start by pushing the due date for paying loan EMIs and credit card bills by a few days and later find themselves revolving their credit. Experts say falling into debt is not a problem, handling it and getting out of it is the bigger issue.

To make the availability of credit easy to the mass, especially under the pandemic, banks and NBFCs have been offering various types of credit and instant loans. This leads to more and more people drowning in credit.

Additionally, with the festive season and the sale and discounts that were offered – most grabbed on the opportunity to steal all the good deals and made their big ‘buys’, which also led to using credit, and getting stuck in debt. If you also think you are heading towards debt, there are various ways to manage it and ease the burden.

  • Heading towards a debt trap – If you have more than 40-45 per cent of your monthly income allotted for repaying debts – it is a sign that you are heading towards a debt trap. Experts say, if an individual’s large portion of their monthly income goes towards servicing EMIs, they should on priority take control of the situation to avoid falling into debt.
  • Defaulting paying dues – Banks will keep calling you to convert your credit card payments into EMIs, for their own benefit, and many people are seen doing that, but ultimately they fall into a debt trap. After using a credit card for paying monthly bills or making online transactions, and then converting the dues into EMIs, experts say these types of spending behavior is an early sign of an impending debt trap. It is not the right approach, as most people don’t understand the consequences. For instance, most end up struggling to repay the amount and just pay the interest and the minimal amount, and get stuck in debt.
  • Credit Card takeover loan – These are like personal loans which are available at a lower interest rate (around 1.5-2 per cent monthly) as compared to 3-4 per cent monthly interest applicable on outstanding credit card payments. Opting for a credit card takeover loan, you are freed from a long-pending credit card debt immediately, and can concentrate on paying up the takeover loan with a lower interest rate. Experts say this also helps borrowers to build financial discipline and a good credit score, thereafter.

Additionally, keep in mind, do not start using your cards immediately after taking the takeover loan to pay off the credit card dues. This defeats the whole purpose of taking the credit card takeover loan and you will fall into a deeper debt hole.

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