Always cut your coat according to your cloth is an old adage you may have heard of. Unfortunately, there are many who do not pay heed to this ageless piece of good advice. The simple logic is that you should not spend more than you earn. Living on borrowed money is never a wise thing to do and will always come back to bite. The fast generation which wants the good life pays scant heed to financial prudence and ends up paying a heavy price for it. Falling into a debt trap early in life can be a really vicious circle that is difficult to come out of.
What are the five signs that show that you are falling into a debt trap?
- Your credit card bill
- Indiscriminate loans
- Frivolous spending
- Monthly Budget? What’s that?
- High Debt to Income Ratio
Your credit card bill – If you treat your credit card as an extension of your paycheck, you are in big trouble. A credit card is meant for convenience and saves you the risk and trouble of carrying cash in your wallet. Purchasing on a credit card is not wrong but you need to pay once the credit period of 30-45 days is up. If you miss the payment, the interest clock will start ticking at a minimum of 2.5% per month and before you realise the credit card debt will spiral out of control. This is one area that you must watch carefully and nip the problem in the bud as soon as it arises.
Indiscriminate loans – If you are the kind of person who likes to borrow at the drop of a hat, you will land in hot water sooner or later. All kinds of loans are available in the market but that doesn’t mean you should take all of them. If you are short of money, you should learn to defer expenses. There is no fun in reaping benefits of borrowed money unless absolutely necessary.
Frivolous spending – If you are a compulsive shopper who likes to buy everything that is available, make sure you earn enough to back it up. If you are doing it on credit, you cannot do it for an extended period because bills need to be paid, else they pile up. If your salary runs out by the middle of the month, it can prove to be an alarming sign of things to come.
Monthly budget? What’s that? – When you start off on your first job, you should plan a monthly budget and make sure you stick to that. Put away a part of your income in a contingency fund. Make a budget for monthly expenses. Control your discretionary spending. If you spend without a plan, you are bound to overspend and your budget will be overshot in no time.
High Debt to Income Ratio – The debt to income ratio is calculated by dividing the monthly debt by the gross monthly income. An ideal debt to income ratio should be between 20-35%. Exceeding 50% is an extremely dangerous level and should be avoided.
What are the remedies to get out of a debt trap?
Stop using your credit card – The first step is to stop using your credit card to arrest the debt that is piling up.
Get a Debt consolidation loan – Calculate the total debt that you owe to various lenders. Apply for a Personal loan for debt consolidation. Personal loans are cheaper than credit cards or unorganised debt. Use the personal loan to pay off the multiple debts. Now, focus on making the EMI payments on time so that you clear the debt consolidation loan.
Improve your credit score – Clearing off your debts will help you to improve your credit score so that you can get a personal loan in case of a genuine emergency.
Make a monthly budget – Draw up a monthly budget and stick to it under all circumstances. This will help you to monitor and manage your finances better and instil a sense of financial discipline.
Cut down discretionary spending – Simply cut down discretionary spending and you will be amazed at the amount of money you can save. This will help you to put away some money for a rainy day.
How can I apply for a Debt Consolidation Loan?
Applying for a debt consolidation loan at LoanTap is a simple process. If you are an Indian citizen or resident over the age of 21 earning a net monthly income of over Rs 30,000, you can apply for personal loan.
All you need to do is fill in the online application form and upload the following documents-
- PAN Card
- Aadhaar Card
- Salary slips for the last three months
- Bank statement of the salary account for the last six months
Once this is done, the LoanTap team will assess your application and if all your documents are in order, the loan will be approved and the amount will be credited to your account within 24-36 hours.
LoanTap offers personal loans from Rs 50,000- Rs 10,00,000 for periods ranging from six months to five years. Annual Interest rates start at 18%. You are free to foreclose the loan after six months without any prepayment penalty.
Getting into a debt trap can be the worst thing that can happen to you but it is not a situation that cannot be salvaged. If you hold your nerves and think calmly, you can get out of the situation over a short period of time.
LoanTap understands that a debt trap can be a sticky situation that can lead to a lot of stress. The best solution is to take stock of your debts, get a debt consolidation loan and square them off. Now, apply financial prudence, go slow on your spending and stick to your budget. Once your debt consolidation loan is squared off, yoū will be debt-free and your credit score will improve. You will have access to clean credit whenever an emergency arises. Remember Loan Tap is just a couple of clicks away. For all your financial worries, you can bank on LoanTap.
Related blogs – When Should You Use a Personal Loan for Debt Consolidation?