The lending sector is booming these days. Many banks, financial institutions, and NBFCs are surfacing on the radar and are offering varied loan products at competitive credentials. As a result, many people are availing of one or more loans to meet their financial ends. While some take a loan to finance any asset, few opt for a loan to manage their other loans. This tends to pile up and soon becomes a burden. The borrowers find it hard to make the repayments on time. This debt trap can eventually become difficult to manage.
WHAT IS A DEBT TRAP?
The inability of the borrower to manage the repayment of multiple loans on time causes a debt trap. Over spendings add to it and make it worse. Several credit facilities together become the foundation of a debt trap.
Even a single loan can become a debt trap if not maintained. All this is reflected poorly on one’s credit report and brings down the creditworthiness by a few notches.
However, if one is disciplined with their spending and schedules their loan repayments on time, one can prevent falling prey to the debt trap.
WAYS TO COME OUT OF A DEBT TRAP
A debt is an obligation that the borrower is liable to pay by hook or crook. A detailed repayment schedule is necessary to wind off the loans on time. The borrower must also be cautious with his spending and refrain from buying non-essential things.
Here is a jot down of some ways to come out of a debt trap.
- Understand the root cause of the problem and try to amend it at the earliest. Address the debt problems and review them to chalk out a solution quickly.
- Prioritize your spending and refrain from buying things that are not essential.
- Make changes by moving towards a less expensive lifestyle. Keep a tab on your spending and start saving.
- Create an emergency fund that can come in handy during emergency times.
- Consolidate your multiple debts into a single EMI with a debt consolidation loan.
DEBT CONSOLIDATION AS A MEANS OF CONTROLLING THE DEBT TRAP
Multiple loans can be hard to handle as one needs to track the repayments. A missed EMI can incur penalty charges and hamper one’s credit score, it is thus advisable to consolidate multiple loans into a single loan for easier management and repayment.
A debt consolidation loan is a process of closing the existing multiple loans with a single loan. The borrower is liable to pay the amount he was supposed to pay but in a single EMI with long tenure and a low-interest rate. The purpose of taking the debt consolidation loan is to minimize the monthly obligations into one affordable instalment.
Advantages of debt consolidation loan include:
- Easy single instalment instead of multiple ones.
- A better interest rate deal ensures saving on the money which would otherwise have gone as interest.
- Better planning of one’s finances.
- It prevents the situation of a debt trap.
If a single instalment is due every month, the borrower is less likely to forget to make its payment and with timely payment, there will be meagre chances of a debt trap. A debt consolidation loan works by taking a new personal loan and using the loan amount to close all the existing loans.
Various banks, financial institutions, and NBFCs offer personal loans at competitive interest rates. To get the best offer it is advisable to research the market before zeroing on the lender. Fintechs like LoansJagat offer a comparative online platform where the borrowers can compare over 40 lenders for their offerings in terms of the loan amount, personal loan interest rates, loan tenure, and EMI and choose the one which best matches their requirements.
If you feel you are on the verge of falling into a debt trap, grab a debt consolidation loan today and prevent yourself from a financial crunch.