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What is Debt Trap? Here are 5 Ways to Avoid Falling Into it

Published on May 26, 2021Updated on Feb 20, 2024

What is Debt Trap? Here are 5 Ways to Avoid Falling Into it

‘Debt trap’ denotes negativity but what is a debt trap? A debt trap means that one owes a huge amount of money  to various institutions or people, which feels neverending. Sometimes loans are taken to gain financial advantage, which is a wise decision. On the other hand, a debt trap is a situation we never want to be in. If you are in a debt trap, it would be a dream to be financially free. There are some ways which can bail you out of this totally.

So What are the Measures you can Take to Come out of a Debt Trap?

You can differentiate a good debt from a bad one. Broadly, debts can be classified into revenue generating and non-revenue generating. Debts that are taken for purchasing an asset can help generate revenue or a better lifestyle for you for a long time. Hence these are known as good debts. If a loan is taken against an asset that does not generate any revenue then it is known as a bad debt. There are ways to dissect your situation and help it.

Below are 5 Ways to Avoid Falling Into It:

  1. Understanding your Debt
    You can take the first step of analyzing the type of your debts. You may want to pay attention to the details of your debt. You may wish to check the different types of debts that you owe, the interest rates on each of these debts, the total outstanding amount, good debts and bad debts etc. 
  2. Check your Priorities
    After having done a deep analysis on debt, you may create a priority list to segregate your needs. You may want to refrain from indulging in certain luxury items. You can either avoid some purchases or look for cheaper alternatives. This is the first step towards a long-term positive effect. For instance, you can cut down on your monthly expenditures. Also, if one of your loans is a car or a bike loan, you can consider selling the car / bike to pay off your loan and use public transport until you are free from your debt trap.
  3. Alter your Lifestyle
    You may want to make some changes in your habits. You may reduce the frequency of shopping or eating out. This may make a huge impact on your expenses. Also, you may consider making a monthly expenditure plan at the start of the month and save some extra cash in an extremely efficient way. 
  4. Consider Debt Consolidation
    This is one of the most important steps in achieving financial freedom. You may make a list of all your outstanding debts with the interest rates that you are paying. Then you can take a single loan and clear all the pending dues. Thus you can focus on clearing only one pending loan. This would be not only easier to manage but the interest rate on such a loan, which is likely to be a personal loan, might be attractive too. This is especially true if one or more of your ongoing loans is credit card debt.
  5. Build an Emergency Fund
    It is important to keep a corpus that you will use for any kind of emergencies. It would be judicious to dip into it if need be instead of borrowing urgently compromising on interest rates and fees in the interest of quick access to funds. Emergency requirements are displeasing and the urgent need and the amount required can be daunting. If you have an emergency fund set aside, medical treatments that require hospitalization can be easily paid off by it. It is equally important to have a good health insurance policy for all family members which can be useful in such situations.
Must Read: How to Clear Credit Card Debt with a Personal Loan?

Debt Consolidation - A Solution to Get out of your Debt Trap!

Debt consolidation is one of the best ways to move towards a healthy financial status. It is harmful to carry unnecessary loans, prolonged outstanding credit cards, etc. This creates a recipe for financial trouble. This is exactly where personal loans can come in and help. All your outstanding balances can get consolidated into a single monthly payment in form of personal loan. Personal loan for debt consolidation is a tactful step to be debt free. This not only helps in working towards a timeframe for clearing your debt but also in planning monthly expenses.

SMFG India Credit Personal Loan to Consolidate Loans

SMFG India Credit offers collateral free and an instant personal loan at an attractive rate starting from 11.99%. Speedy approvals, easy eligibility, and lucid documentation are what make SMFG India Credit personal loan the preferred option.

Easy Documentation

SMFG India Credit personal loan’s easy documentation includes submitting identity proof, address proof, PAN, salary slips for the last three months for salaried individuals or income proof / financial statements for self-employed individuals and bank statements for the last six months

Apply Online

You can apply for SMFG India Credit personal loan by applying online. The step by step process starts by entering the requisite details, uploading the requested documents, and then submitting the transaction. Then upon quick verification, the loan amount would be disbursed to your account within minutes.

Simple Eligibility Criteria

Personal loan eligibility differs from person to person. Salaried and self-employed individuals can apply for SMFG India Credit personal loan. The main factors are disposable income, healthy credit score, age, repayment capacity, credit score & history, etc.

Personal Loan EMI Calculator

Personal loan EMI calculator can give you a picture of your monthly outflow. You need to enter your loan amount, repayment tenure, and rate of interest. In a few seconds, you will get an estimated amount of your monthly outflow.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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