Apr 24, 2017 06:08 PM IST |

Beware of these three early signs of a debt trap

If you are going through one of these situations, it is time to sit back and relook at your money matters.

Beware of these three early signs of a debt trap

Moneycontrol News

Many millennials cannot digest the idea of leaving their credit cards home while stepping out. Credit cards have reached ‘a must have’ status over last few years as they facilitate easy access to money. To put it straight loans have become an integral part of the money matters of young individuals. But overdoing loans may lead you to a dark future.

Borrowing to repay your existing loan is a serious issue. Personal finance experts call it ‘debt trap’. The problem here is it not only makes one think that getting out of debt is near impossible but also eliminates access to any opportunity to grow financially.

However, this situation does not emerge all of a sudden. It is an outcome of all the incorrect money decisions one took. To be precise, over borrowing by an individual leads him into a debt trap.

We outline some early signs that will tell you that you are about to fall into a debt trap:

Inability to pay off your credit card dues: Sustained rise in credit card dues over a period of time is a serious matter, especially if it is caused by your inability to pay off your credit card outstanding bill in full. Many times individuals pay the minimum balance on their credit cards and the rest is revolved. One must understand that the interest rates on credit cards are very high (around 40%) and hence inability to pay off the bill costs a lot. If you cannot repay your bill by due date, it is time to sit back and look for means to get rid of such high costs debt.

Borrow to consume: Most individuals do not take this situation seriously. If you have too many loans running in your name- a combination of home loan, personal loan and a top-up loan and you do not have much money left with you, there is a possibility that you will be forced to buy groceries on credit card. The problem begins when you can’t pay the credit card outstanding. There are instances in which individuals opt for personal loans to pay their rents or to pay their kid’s monthly school fees. If you are forced to borrow to survive, you are almost in debt trap.

No bank is offering you loan: You are looking for money and no bank is keen to offer you money just because the banks are of the opinion that you have borrowed too much. This is a typical situation when the banks check your cash-flows before sanctioning your loan. If the banks see you using large chunk of your income for servicing your loans, they may not approve an additional loan.

If any one of these situations you are going through, please do consult a credit counselor.
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