Read in: 2mins, Published On , 19 Aug 2020 By One India
DEBT TRAP – THE NEW REALITY
While playing video games, you know that one wrong move and you could get trapped! Life functions in the same manner. One wrong ? nancial move and you are Debt-trapped. Let’s understand this better
Traditional vs New-age Debt
While the real essence of Debt has remained the same, its applicability has changed over the years. Earlier people would borrow money for bigger needs such as a house, after due consideration. Low Debts could also be credited to the dif? culty of getting a loan. Today you borrow money for even small wants such as an earphone. The easy availability of credit is alluring.
However, the seemingly helpful loan comes with hidden costs. Here’s what you don’t realise:
? You will keep paying interest on the interest that gets added to your outstanding credit card amount. If you don’t clear your dues, you can end by paying between 36-42% interest in a year.
? Once you enjoy the credit facility, you will not shy away from living on credit, which is one of the initial signs of entering the Debt trap.
? Multiple credits not only affect your credit score but also make repayment dif? cult. Missed payments attract additional interest or penalties, which will only push you further into the Debt trap.
? Defaulting on credit card payments also attracts 18% GST on the sum of accrued interest and charges.
Warning signs you need to check
1. More than 50% of your monthly income is eaten up by EMIs
2. You have too many EMIs for different reasons
3. You spend more than 70% of your income on your ? xed expenses including EMIs
4. You take loans for small-ticket purchases
5. You default on your credit card payments
6. Your loan applications get rejected
7. You are unable to save money
So, are you Debt-trapped? Wait! Don’t press the panic button yet. The way to avoid a Debt trap is to have a surplus every month. You have to work hard to rein in your expenses below your income and invest regularly. Systematic Investment Plan (SIP) allows you to save and invest for your goals in a disciplined manner.