Select Airport
We love your company!

Stay logged in to proceed with bookings, orders and offers.

Changing Terminal Alert

On changing the terminal, you will loose items in your cart. Are you sure you want to change your terminal?

Items already in cart!
Your cart contains items from the Arrival store. Would you like to clear it and add items from Departure store?
Items already in cart!
Your cart contains items from other categories. Would you like to reset your cart for adding items from this category?

Struct in a Debt Trap? Here Are 8 Ways To Get Out Of It

This blog will guide you on how to escape a debt trap with a specific focus on personal loans, offering practical strategies to regain control over your finances.

Table of Contents:

  • 1. Assess Your Financial Situation
  • .  2. Develop a Budget and Stick to It
  • 3. Prioritize High-Interest Debts
  • 4. Consider Debt Consolidation
  • Negotiate with Lenders
  • 6. Seek Professional Advice
  • 7. Avoid Accumulating More Debt
  • 8. Explore Additional Income Sources

Read More

Read Less

Being in debt is discomforting and panic-inducing for those who are dealing with it. Sometimes one is left with no choice but to aid their finances by borrowing from lenders. Till the time it is manageable, it doesn’t pinch, but often one thing leads to another and one finds themselves under the vicious cycle of borrowing money which keeps on accumulating and debt repayment becomes a continuous exercise with no room to save or spend on personal expenses. Getting a Personal Loan seems convenient but this can go out of hand if not managed prudently.

 
Understanding the Debt Trap 
 
A debt trap is a vicious exercise of taking new loans to pay off the existing loans and repeating the cycle over and over again. Here are some classic signs of a debt trap-

  1. Increasing Debt Balance: Even if you are making all the payments timely, your debt doesn’t seem to end. This can happen due to higher interest rates charged by the lending body.
    2. Frequent Loan Borrowing: The habit of paying off the loans by taking a new loan turns into a cycle of debt trap.
  2. Minimal Savings: There are practically no savings left due to ongoing loans.
    4. Missed Payments: When debt repayment is not done on time, that snowballs into compounded charges and late penalties. 

One downside of Personal Loans is that there is a high interest levied on them, which turns them into an expensive proposition. The borrower often finds himself unable to repay the amount in the absence of funds. 

Let’s look at how you can get out of debt traps, in case you struggling with the repayment of personal loans.

1. Assess Your Financial Situation

Take a step back and understand your financial condition. All you need is to list out the details of your debts with clarity on Loan Amount, Interest Rates, EMIs and their date of payment. You will have an idea about the nature of your loans and which debt needs to be addressed first. 
 
Steps to Assess Your Debt 
 
- Create a Debt Inventory: List out all the remaining debts including unsecured loans, credit card bills and other such details 
- Review Interest Rates: You need to figure out which of your loans have the highest interest rates as these loans are costing a lot of your money 
- Evaluate Monthly Payments: You need to get a complete idea about the minimum payment value of each debt which will not invite any additional penalties.


2. Develop a Budget and Stick to It 
 

Never underestimate the value of having a well-planned budget that can bail you out of your misery of unending debts. You need to track your income and expenditure which will help you identify the areas where savings are possible and that money can be used to repay your debts. 
 
How to Create an Effective Budget: 
 
- Track Your Spending: Keep a check on your spending. This can be segregated into daily, weekly and monthly expenses to see the flow of your money. 
- Categorize Expenses: The essential expenditures like grocery, utilities and rent should be separated from non-essential expenses like movies, clubs and travel. 
- Set Spending Limits: Try to make a plan to pay off your loan with the saved expenses. The plan should be realistic.

- Allocate for Debt Repayment: You can also set aside a specific amount from your income to pay off your high-interest debts.

3. Prioritize High-Interest Debts 

In a scenario where you have multiple loans to pay, you should follow the ‘avalanche method’ in your approach. This means that you treat your high-interest loans as a priority and consider repaying them as they can become quite hefty in amount due to their higher interest rate.  
 
Implementing the Avalanche Method: 
 
- Continue Making Minimum Payments: Try not to accumulate penalties and late fees by paying a minimum amount of your bills. 

- Focus Extra Payments on the Highest Interest Debt: Whatever extra money you save monthly should be utilized in paying the loan with the highest interest rate. 
- Move to the Next High-Interest Debt: After you have paid off the loan amount with the highest interest, start with the loan that charges the second highest interest and repeat this process until all your debts are cleared.

4. Consider Debt Consolidation

This is one of the most common practices to treat your loan repayment effectively. The multiple existing debts are consolidated into a single loan with a lower interest rate. This process is quite helpful in reducing the interest on multiple loans which can become a significant amount in the long run. Also, a single loan is easier to manage as compared to multiple loans.

 
Benefits of Debt Consolidation: 
 
- Lower Interest Rates: You are likely to be offered a lower rate of interest as compared to multiple loans and their respective interest rates. 
- Simplified Payments: It is easier to keep track of your debt and repayment with only one loan than managing many loans simultaneously.

- Fixed Repayment Schedule: A consolidated loan typically comes with a payment plan to help you stay disciplined towards your repayment. 

Negotiate with Lenders 

It doesn’t hurt to reach out to your lender to discuss the possibility of any negotiation over your loan terms. Sometimes, financial institutions are willing to accommodate your request to revisit the terms and conditions of your loan especially when there is a risk of defaulting. The lenders often agree on lower interest rates, extension of the loan tenure or even reducing the repayment amount. 

 
Tips for Negotiating with Lenders: 
 
- Be Honest About Your Situation: You should be honest about your financial situation and also about your intention of repaying the debt.  
- Request Lower Interest Rates or Monthly Payments: You can request if they can revisit the interest rates or lower the EMI amount.

 - Seek a Temporary Hardship Plan: There are hardship plans in place that help reduce payments or freeze interest accruals. 

6. Seek Professional Advice 

Often when the financial situation seems unredeemable, you can always turn to a professional financial advisor or credit counsellor. These professionals have expertise in offering solutions for such cases. They can also offer to negotiate with the lender on your behalf.

What a Financial Advisor Can Offer:

 
- Debt Management Plans: You can expect simpler and more effective plans to pay your debts.

- Budget Counselling: You also get suggestions to maintain a sustainable budget as per your monetary condition.  
- Debt Settlement Negotiation: These professionals are trained to negotiate with the creditors over your loan repayment and help in relaxing the loan terms for you.

7. Avoid Accumulating More Debt

In a situation like this, it is better to curb your temptation to rely on newer debts as that will make this debt cycle an endless loop with lesser chances of redemption. Do not rely on any form of credit as it can worsen your financial health.

 
Strategies to Avoid New Debt
 
- Use Cash for Daily Purchases: Try paying everything via cash, UPI or debit card. Stop using credit cards unless it is necessary. 
- Build an Emergency Fund: Try working on the good old habit of saving a portion of your income for rainy days, which will help curb the desire to borrow.

- Cut Down on Luxuries: Till the time your debt remains unpaid, don’t squander your income on unnecessary expenses.

8. Explore Additional Income Sources

Try to find a better job that gives you a significant raise so that your income gets increased. Otherwise, you can start with freelancing to make extra money to come out of the debt trap. 

 
Ideas for Additional Income: 
 
- Freelancing or Part-Time Jobs: If getting a better job is not the solution for you, try your hand at tutoring, writing, or designing jobs, whatever works for you.

- Selling Unwanted Items: You can get rid of unwanted items like furniture, electronics, bikes etc. by selling them online and earning some money out of them.

Remember, the key to getting out of a debt trap is to stay committed to your debt repayment plan and make consistent efforts to improve your financial habits.

Disclaimer

The Adani One expressly disclaims all liability, direct and indirect, in respect to actions taken or not taken based on any or all the contents of this Blog. The Blog is an opinion of the contributor based on the collation of data from various sources and is provided only for information purpose. Adani One does not canvass, advertise, solicit, invite or induct for any product, merchandise, information, brand or any other materials mentioned in the Blog, nor does it obtain any monetary benefit from the same. Reader is advised to read and apply his/her intellect and discretion in this regard. Any Intellectual Property mentioned in this blog belongs to the rightful owner. We do not intent to claim any interest over the same.