Tips to Avoid Debt Trap

By: Stephen Thomson

Debt is a fact of life. Debt comes in many shapes and forms, which include mortgages, credit, debit and store cards, personal loans, overdrafts, and hire-purchase (HP) agreements. The original idea behind lending credit was to help people to buy something they needed, something important, such as buying a home, medical emergency, education, etc. In contrast to the original idea, nowadays credits are taken to buy things most of us don't really need. Buying on credit has become an addiction for most of us.

While borrowing may be the ticket to fast growth, it can also keep you tossing and turning at night if you're struggling to make payments on the principal. Following warning signs can give you the hint that you have immersed yourself into too many loans & have reached danger zone.

- Little or no savings left in your accounts

- Paying minimum amount due on your credit card bills

- You are using major portion of your monthly income to pay off your debts

- You are borrowing from different sources to pay off your dues

- Your cheques have bounced for few times.

If you are in the situations above which are the signs that indicate how deeply you are stuck in debt. All you need is to get disciplined and follow a debt-management strategy.

Arrange your borrowings in order:

If you are servicing many loans, the high interest rate loans and those with no tax benefits should be cleared off first. Personal loans and credit cards fall into this category. Loans that offer tax benefit & low interest loans like home loan & education loan can be cleared off gradually.

Try to get a low cost loan to pay off your high cost debts:

Taking a personal loan to repay your card out standings is a good idea and makes sense since credit card interest rates are steeper than personal loans.

Check your own resources bearing lower rates of return:

Fixed deposits, savings account balances etc., bearing lower rates of return can be withdrawn to clear off your dues if you are neck-deep in debt.

Cut down on unnecessary expenses:

Cut down your unnecessary expenses & save some money to pay off your high interest loans. You may have to live a moderate lifestyle for some time to come out of the debt trap.

Borrowing for a need, not a want:

If you are planning to take a new loan, take it only when you need that loan such as home loan, for buying an asset. When you borrow money to increase your assets, you are using your borrowing wisely. Avoid taking loan for luxury expenses, purchase or vacation.

What amount can you repay?:

Avoid taking loan upto the maximum limit of your net monthly income. You should know your repayment capacity before taking any loan. The time for developing your debt-management strategy, most experts agree, is before you borrow.

However, in some situations taking a loan like home loan can help you to achieve financial freedom & also pay off in long run.

To get loans at low rate with no hidden loan costs & pre-approved home loan, please visit

http://www.truevalue4money.com/loans.html

Debt, Loans & Business Cashflow
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