Escape Debt Traps: Utilising Personal Loans for Financial Freedom

Posted on Monday, April 29th, 2024 | By IndusInd Bank

Debt traps create a cycle of financial burden and can impact mental well-being with its long-term consequences. Being trapped in debt not only limits your financial options but also increases the debt burden and deepens the distress situation. A personal loan can be an effective option to consolidate all your high-interest debts and gradually get you out of the debt trap. This article aims to provide a few tips to escape debt traps by utilising personal loans.

What is a debt trap?

A debt trap means defaulting on a loan(s) or not being able to pay back the loan(s). A debt trap typically refers to a situation where you are caught in a cycle of borrowing additional funds to meet the financial obligations but failing to repay the debt completely. This situation may arise due to various reasons. The following are some of the reasons for debt trap:

1. Multiple debts

Availing multiple debts simultaneously can cause financial stress. Especially loans with different terms, due dates, and higher rates of interest can make it difficult to prioritise the payment and manage the debt.

2. High-interest rate

The high-interest rate on loans increases the EMI burden and hence takes away a significant part of monthly income. It would become challenging to manage your fixed monthly financial obligations or expenses such as utilities, rent, education expenses, etc. These situations can lead to a debt trap.

3. Financial hardship

Financial hardships like job loss, unexpected medical emergencies, business loss, etc., can aggravate debt issues. It can become difficult to keep up with the rising expenses and pay off the existing debts. This can also lead to mounting credit card bills and worsen the debt trap situation.

4. Ignorance

Ignorance can be one of the main reasons for the debt trap. Not understanding the loan terms clearly, being unaware of hidden charges and penalties and such ignorant behaviour may make you fall prey to predatory lending.

How can a personal loan help you deal with a debt trap?

A personal loan can be a great tool to consolidate your multiple debts and break free from the trap. Here is how to get out of the debt trap using a personal loan:

1. Debt reduction by consolidation

With online instant personal loan , you can easily avail of a personal loan to pay off multiple high-interest loans that you have. This consolidation has the potential to reduce the debt over the long run.

Also Read: Who is eligible to apply for a personal loan?

2. Manage debt effectively with a single monthly payment

Managing multiple loans with different interest rates, repayment schedules, and terms is a complex and challenging task. Consolidating the debt into one personal loan can help you manage debt effectively with a single monthly payment. This simplifies the process of budgeting, and debt management and reduces the risk of default.

3. A lower rate of interest reduces the cost burden

If you have a good credit score, a personal loan can be availed at a lower rate of interest to pay off all your high-interest loans. This reduces the interest cost burden over the years. With instant personal loan approval online, availing of loans quickly on favourable terms has become a seamless experience.

4. Flexible repayment term

Personal loan offers flexible repayment terms that can be structured as per your requirements. With a disciplined approach, it is easier to manage debt and come out of its burden.

Also Read: Personal loan interest rates and charges: IndusInd bank

Conclusion

In conclusion, a debt trap can have serious consequences damaging your financial health and reducing financing opportunities in the future. With a personal loan availed on favourable terms, you can effectively consolidate multiple loans and manage them in single monthly payments. Creating a solid budget, proper financial planning, and consolidating your multiple loans using personal loans can help you break free from the debt trap.

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.