One often takes the route of debt to satisfy his/her needs when the needs are beyond his/her financial capacity. At that point of time s/he feels blessed but if this is not managed properly, this blessing turns out to be a curse and then s/he feels cheated and finds her/him caught in a trap of debts.
Various Forms of Debt
There are so many kinds of debt available in the market; formal as well as informal. You can borrow in such ways:
Credit Cards: These are the most risky debt available in the market. The cost of credit card loans ranges between 35%- 50% per annum. Use only when it is necessary.
Personal Loans: These also are very risky money. People often borrow to satisfy their needs because these are easy to get. The cost of these loans range between 25%- 35% per annum.
Leveraged Investment: People borrow to invest in stocks or other investment avenues to earn higher return. Try to avoid such leveraged investment if there is not 100% guarantee of higher returns. People often make losses by such investments.
Consumer Loans: To buy a T.V. or refrigerator one opts for consumer loans. Consumer loans are very good things. But before taking any consumer loan one should always assess one’s disposable income. These loans have a short period to get repaid.
Car/ Vehicle Loans: These are very good loans but don’t buy too many vehicles unnecessarily on loans. These loans have very short period for repayment and of huge quantum. Interest rates range between 9%- 15% per annum.
Education Loans: This is one of the best avenues of financing one dream of higher education. This is not free from risk but it has longer repayment period and interest rates ranges between 9% – 12%.per annum.
Home Loans: This is one of the safest avenues of financing because the interest is not very high and has very long repayment period. Interest rates range between 8%- 15% per annum.
Take Care of these while Borrowing Money
There are many reasons for such situations. Before any borrowing/ loan, one should always take care of some points so that he/she does not face uncomfortable time.
1. Never Borrow Due to Heat of any Moment/ Incident.
2. If borrow calculate and assess your disposable income and repayment schedule.
3. Before signing any agreement/ contract read the relevant papers carefully.
4. Avoid borrowing for investment in stock market.
Ways to get out of the Debt Trap
Though there is no certain rules to follow by which one can get out of the debt trap. This totally depends on the situation and paying capabilities of individuals. So different people have to follow different route. The below is a generalized form that is applicable to almost everyone.
Step 1: Rank the debt Rank the debts in order to the interest rates so that you can know the costlier loan. And try to repay the costlier loans as soon as possible.
Step 2: Consolidate the debts Consolidate the various kinds of debts in one or two instruments to manage efficiently. For this you should request to your bank on some terms and conditions.
Step 3: Finance to repay the debt finance the various debts with one or two loans with lower interest rates. This is very cost-effective way to get rid off and to manage various loans.
Step 4: Always pay the interest on time Always pay the interest on time otherwise some banks began to charge on interest also.
Step 5: Liquidate the low yielding and small investment Liquidate the low yield small investments to repay the debt. It is worthless to have low yielding investments and paying higher interest to bank.
Step 6: If possible negotiate with the lender Always negotiate with the lender. In case of credit cards do it always. There is always a scope of negotiation on credit card loans.
Step 7: Cut on expenses If you are facing problem in repaying your loans please try to cut expenses on your luxuries. It is necessary for your peaceful mind so that you do not have huge burden of expenses.
Again it is you and your attitude towards your money is main concern for making your money used properly