How to get out of a debt trap?

Naveen Kukreja Paisabazaar.com A debt trap is a financial situation where you are unable to make timely EMI or credit card repayments, resulting in increasing outstanding debts. You can be caught up in such a situation if you have taken too many loans and are unable to repay. What should you do to get yourself out of a debt trap? Read on. 1.Assess your finances: The first step is to understand the extent of debt. List down all debts, along with their interest rates and outstanding loan amount. This will tell you which loans are draining your purse the most. Then, note down your must-have expenses such as your day-to-day household expenses and insurance premiums, and calculate the total amount available for loan repayment.2.Seek help from family and friends: Most people commit the mistake of not asking for soft loans from friends or family members. However, they should be the first people you should reach out to. Such borrowings come with no or very low interest cost and are, therefore, very handy in paying off other debts.3.Prioritise debt repayments according to interest rates: Unsecured loans such as credit card dues have high interest rates while home loan or education loan offers the benefit of tax deductions, thereby decreasing the cost of borrowing. The strategy should be getting rid of expensive loans first while continuing with the beneficial ones.  4.Swap high-cost loans with low-cost loans: Pay off your high interest-rate loans by availing new loans at low interest rates. For instance, if you have credit card dues carrying an interest rate of 40–45 percent, pay it off by availing a personal loan. 

5.Liquidate your investments to pay off your debts: Use low-yield investments to pay high interest-bearing loans. If you have a fixed deposit yielding 9 percent annual returns and a personal loan at 18 percent, it is sensible to liquidate it and repay loan.6.Restructure your loan: You can approach your lender for restructuring a loan by extending the tenure. Though this will bring down the EMI, net interest payout will increase. If this is not possible, perhaps you can look at settling the loan. However, this is not advisable as settling a loan impacts credit score and makes it difficult to get approval for future loans.