To get out of a debt trap:
People tend to accumulate debt over time. Some of this debt is beneficial, such as a home or car loan, which are secured loans. Sometimes, however, we are forced to take on high-cost debt, such as credit card debt or loans from the market with very high interest rates. All of these can lead to a debt trap, where we have more debt than we can repay.
However, not all is lost. You can always escape a debt trap with some financial prudence. Here are a few smart tips to help you get out of a debt trap.
One of the best ways to escape a debt trap is debt consolidation. This means you can take a new, lower-cost Personal Loan and pay several of your pending debts. When you consolidate your debt, you combine multiple debts into one. Consolidating your debt also allows you to opt for favourable payoff terms, lower rates of interest and lower EMIs.
Once you have opted for debt consolidation, avoid accumulating new debt with high interest rates or expensive terms. High-cost debt, such as credit card debt or unsecured loans, can quickly become unmanageable and worsen your financial situation. By not taking on additional high-cost debt, you prevent further strain on your finances and focus on paying off existing debt more effectively.
Prioritise repaying loans with the highest interest rates or the most costly terms. Since these loans accumulate interest more quickly, paying them off first reduces the overall amount of interest you will pay and helps you get out of debt faster.
You must create a budget and stick to do. Only incur necessary expenses, whether big or small, once you are financially comfortable. That means you need to reduce the use of your Credit Card too.
To increase your secondary income for loan repayment, consider working part-time or freelance projects aligned with your skills. Explore gig economy opportunities, such as driving for ride-sharing services or offering tutoring. Additionally, monetise hobbies by selling crafts or providing consultancy. Look into rental income by leasing unused space or property. These extra earnings can be dedicated to repaying loans, reducing debt faster and alleviating financial stress. Diversifying income streams will bolster your repayment capacity and overall financial stability.
Since your Credit Card debt is an unsecured loan, you must use it responsibly because you end up incurring high interest rates and steep penalties for not repaying it on time. If you do not repay your credit card debt in time, you risk paying higher interest rates with every missed payment.
You could opt for a Credit Card balance transfer to a new credit card with a lower rate of interest, which is often a promotional interest rate. However, you should only opt for this if there is a high-interest difference and if you can pay off the dues within the promotional period.
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.
Applying for an HDFC Personal Loan is as easy as clicking a single button. To apply for a personal loan, click here!
Don’t want to head into a debt trap? Click here to read more about signs of the debt trap.
Stay Debt Free and Jio Shaan Se!
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