How to get out of a Debt Trap?

You land in a debt trap when your income falls short in paying for the EMIs and the interest keeps piling up on the outstanding amount. You end up taking fresh loans to clear off your existing loans and before you can realize, your debt situation spirals out of control. And once you are in, it only gets harder with time unless you rescue yourself out of it. Your credit score takes an ugly form, savings and goals go for a toss, and your debts continue to grow monstrous in size. If you find yourself in a situation like this, don’t lose your cool.

Your first priority should be to get rid of high-cost loans credit card outstanding, personal loans, etc. Since it’s quite unlikely for an investment to generate returns that can match the cost of credit card outstanding around 40% it makes sense to pay off the dues by cashing out investments in mutual funds, gold, etc. Taking help from one’s family is another option. Hiding financial problems from family members is a big problem. Connect with family or close friends and try to get interest–free loans.

Consolidating existing loans and leveraging your assets to get new loans at reasonable interest rates to settle existing expensive loans should be the next step. As short-term loans come with higher interest compared to long-term loans, you may take long-term loan against property, top-up on your housing loan, and settle your high-cost loans. Some NBFCs lend to people who have the ability to pay back even if their credit score is low because of a default. You may approach and negotiate with such NBFCs to grant loans at reasonable interest rates,

Take these steps to find your way out of the debt trap before the New Year sets in.

1. Get rid of the expensive loans first

If you have multiple loans to deal with, don’t try to handle all the loans at the same time. Pick the ones that have a higher cost associated and clear them off first. This may include your unsecured loans such as credit card bills. Loans that offer tax benefits such as home loan and education loan come second in line. Meanwhile you need to bring in a certain amount of financial discipline in terms of timely repayment of EMIs, staying away from new debts, and avoiding unnecessary expenses. This will stop you from inflicting more damage.

2. Restructure and consolidate all Debts

If you have multiple loans with different tenures, consider talking to your bank to consolidate these loans into one and restructure the interest and tenure accordingly. It’ll help you to lower the interest rate. You may also negotiate with the bank to increase the tenure in order to reduce the magnitude of the EMI.

3. Sell assets or liquidate investments to repay the loan

If things are completely out of hand, you may consider selling off your assets which are not in use at the moment such as an old car. You could also consider liquidating your low return investments to repay the high-interest loans. Once your debt level comes down, you can rebuild your investment portfolio.

4. Stop taking on any fresh high-cost debt

Once you have opted for debt consolidation, you must ensure you do not take on any fresh debts. The idea is to get out of the debt trap so accumulating more debt is counter-productive.

5. Seek professional help to get out of the Debt Trap

You can approach professional debt counselling agencies that provide advisory services. They also offer repayment options. Counselling agencies help create a budget and set expenditure limits. Some agencies may also negotiate with creditors on your behalf and assist in lowering interest rates and restructuring your loan.

You can apply for an attractive offer with best possible Rate of Interest and Terms for Personal Loan, Business Loan, Home Loan and Car Refinance Loan.

FundsTiger is an Online Lending Marketplace where you can avail fast and easy Home, Business and Personal Loans via 40+ Banks and NBFCs at best possible rates. We will also help you to improve your Credit Score. We have dedicated Relationship Managers who assist you at every step of the process. We can also help you in Balance Transfers that will help you reduce your Interest Outgo