DEBT TRAP

A debt trap in simple words is negative income leading to more debt (loan) with the passage of time.

Ideally, Income per month – Expenses per month = Savings

In case in the above equation, the net number is negative. We have a gap between income and expense, where in the income is lower than the expenses for the duration and this gap is filled through debt it can be in the form of personal loan, credit card debt, borrowing from friends and family, home loan, car loan, loan against property or shares etc.

Planned expenses vs. Un-planned expenses

Planned expenses are those expenses which are anticipated and budgeted by the household out of their current and future income. Example of it can be house loan is also a loan but a planned one (people take excess loan in anticipation of increased income later that’s a separate case which can also lead to debt trap, that’s a separate case).

Un-planned expenses are normally impulsive buying coupled with inadequate income and desire to live more TODAY leads to un-wanted wasteful expenses thus accumulation of debt as the current income is in-sufficient to meet the current obligation. From here the debt accumulation starts primarily with the credit card (most easily available form of credit and most expensive too).

A less malicious reason why people go into debt is the ignorance and immaturity. People who don't know how to handle their money and don't ask for guidance. They think they know everything there is about money management and refuse any help. No matter how or why families go into debt, they pay a high price for not properly managing their money -- more than the additional interests on their credit purchases.

We offer FREE advice on how to avoid debt trap. In case you are facing any problem wrt your finances do contact us.