The concept of saving money involves letting go of what you want at the moment for a better future. However, with the introduction of credit cards, loans, and EMI schemes, people can now access whatever they want since money is instantly available.
This easy access to credit has made people pretty comfortable with the idea of taking debt to take care of their needs and wants. However, it can also easily make things go out of hand with severe consequences. A debt trap is one of the most dangerous ones.
Understanding Debt Trap
Debt is a situation when one owes a lot of money that gets out of control. In other words, you spend way more than your earnings. This might not be due to a careless situation many times as there could be unexpected events, bad planning or education, which can make you take debts that might take years to settle.
Tips to Avoid Getting into a Debt Trap
While taking loans might be an intelligent move, you also need timely repayment to get rid of them. This is essential, so you don't get into a debt trap. Even though many people want financial freedom, you need some clever moves to make it happen.
Here are tips to avoid getting into a debt trap
Be Aware of the Issue
Know what the issue is and explore it to know what you can and cannot control. Also, have a plan to help with debt repayments. It also involves addressing the main aspects that might need your attention.
With this, you can acknowledge your present predicament and have a reliable blueprint for the future. Having a deep review might be the answer to take care of your current debt issue.
Have a Scale of preference
The idea behind having a thorough analysis is to identify needs and wants. With this, you can have a priority list to divide your needs. As a result, someone in a debt trap will be better off staying away from luxuries and wants.
Some items also might not be critical to survival even though they make you pretty comfortable as well. You might be better off staying away from these as well. Avoiding wants can help you develop a repayment plan that will have a better effect on your debt profile.
Consider Habit Change
Making some behavioral changes might also be helpful, as it could save money. For instance, you can ramp up your cooking skills to eat more homemade meals rather than eating outside. You not only save on food, but your health also gets some benefits.
Create a monthly expenditure plan and deduce the extra amount you are saving via the lifestyle change. It can open your eyes to other saving potential available over time.
Debt Consolidation
Taking care of various loans with different interest rates might be overwhelming. However, a good way around it is to consolidate the debt into a single personal loan. This option allows you to consolidate various loans under a single loan. It can make the repayment process easy and help you get out of the trap.
Have Emergency Funds
Saving is a healthy and recommended habit. Even though saving is essential, one also needs some funds set aside to take care of emergencies. You might lose your job unexpectedly or have a health issue. Emergency funds will make it easy to manage such expenses. It helps manage tough times without resorting to borrowing.
Conclusion:
If you want financial freedom, you need to stay on top of your finances. Ensure you have a record of your income and expenses to know how you spend your money.
Bear in mind that taking a loan might be good for you. It might help take care of a pressing financial issue. However, timely repayment is the only way to avoid high-interest rates.
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