How To Avoid Debt Traps While Using Loan Apps Responsibly
We all love eating ice cream, but we dread diabetes. Similarly, we love the instant funding available through the plethora of online personal loan apps, but we must consider the consequences to avoid the dark dungeon of debt.
Generally, a debt trap is when the lender cannot make timely online payments of EMIs, interest rates, and late fine charges all add up gradually to create a big debt. It is a vicious cycle where one is trapped, and it becomes quite difficult to break free after that.
What are the major red flags signifying you are headed toward the debt trap? There are many, and only one should be addressed to remain debt-free.
- Your credit score is in shambles: Credit score is a determining metric to check whether you are on the healthier side of your financial standing. Often, a person is very thin on the monthly budget and relies too much on personal loans for basic expenses but fails to repay on time. It is no less than inviting the debt dragon towards self, and also, some people make the minimum payment and leave the rest to add on to the ever-increasing debt because of interest generated on that.
- Your deck is full of multiple loans: Financial crunch sometimes leads to a misleading path of multiple loans; some you borrowed from your peers, some accumulated because of the multiple transactions through credit cards, and the rest due to instant personal loans you sanctioned for all your leisure activities. A better alternative for debt consolidation includes putting all the payment terms for all the different types of debt under one umbrella term and making all the payments from a single window interface.
- You are finding it difficult to save money: No matter how much you brainstorm and develop a monthly budget plan or build a road map of expenditures, you still need to save a few bucks. Plenty of investment options online, such as mutual funds, ETFs, FDs, retirement plans, etc., will be useful in the long run as these investment schemes allow investors to leverage the advantages of compound interest associated with these types of securities.
- Your EMI should not consume your income: Spending can be addictive. Given the availability of multiple loan apps and instant credit facilities online, it requires sheer determination and grit to remain unfazed by the spending spell. To keep your cash flow of income in check, it is a rigid rule to stay within the EMI payments of 50% of the entire salary. So that there is the availability of funds in your account and you can manage the EMI payments of only the necessary loans you had taken previously.
Suppose somehow you are already facing the music of being ridden with debts. Consider a personal loan a sustainable option because applying for a personal loan is hassle-free and requires minimum effort. People resorting to credit cards for EMI payments fall victim to the misconception that they offer lower interest rates than any instant loan. However, the fact is the other way around.