Skip to main content

Debt Trap

 

Inflating prices of essentials, coupled with stagnating annual salary increments and indiscreet spending habits, are causing many individuals to sink into a bottomless debt trap. Essentially, we get into a debt trap when most / all of our incomes get consumed in repaying loans and/or debts.

Crawling your way out of a debt trap can be a process that drains you emotionally, physically and financially. Most debt survivors concede that a debt-ridden life is riddled with procrastination, compulsive borrowings and plenty of stressful moments.

Any lapse in debt repayment inevitably leads to a higher interest rate, which worsens the situation further by lessening your money outflow.

How to deal with a debt trap

The most effective way to combat a debt trap is to avoid it in the first place. If you are already in a debt trap or worrying that you are sliding there, here are four practical ways to avoid debt:

  • Mind your outflow: Human desires are practically endless. It's tempting to get carried away with what we erroneously assume are necessary expenditures, which is why it is helpful to keep reminding ourselves about what is a debt trap.

For a start, ensure that you live within your means. Your spending doesn't need to compete with your earnings, nor with your friends' spending. When your expenditure begins to outweigh your savings, it reflects an imminent debt trap.  Take stock of the situation and plan out your strategy.

Similarly, when your borrowings become an inseparable part of your earnings, the quantum of debt gradually becomes higher, dragging you into a deep debt trap. Every lender offering a loan calculates your DTI (debt-to-income ratio), which is a percentage of the income used for debt repayment. So the more your debt is as a percentage of your income, the lesser your chances of getting a loan.

 

  • No callousness on loans: Remember, loans are not something you can be flippant about. A loan should ideally create value for your asset and continue to augment its value as time goes by. A home loan is a perfect example of one such loan.

However, when you take a personal loan to fund a vacation or some other avoidable indulgence, you have a lot to worry about. You don't want to land up in a situation where you struggle with your EMIs linked to such loans.

 

  • Sound management of credit card bills – Optimally managing your credit card bills is a great strategy on how to avoid debt. Although it is okay to pay your bills via credit cards, you may want to curb the tendency to go overboard in unnecessary shopping excesses.

Remember, credit cards entail a high yearly interest rate of almost 36%. Regardless of what the 'due date' is, you will HAVE to make the bill payment at some stage, so might as well do that on time.  Any negligence in this regard could incur alarming consequences in the form of accumulating interest.

 

  • Inculcate budgeting: While formulating a strategy to get out of debt, make sure to include budgeting in your long-term plans, after discussing with your family or spouse.

Each month, allocate some amount to address contingency expenses (which do not include your monthly utility bills that are to be prioritized in any case).  You may also want to save 10-20% of your monthly income to build a post-retirement nest egg.

If your debt situation seems to be going out of hand despite putting in your best efforts, it is best to get professional help in order to get your financial life back on track. There is no shame in seeking expert advice when you need it, especially when it pertains to your family's financial health.

Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016 or Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

Myths about Exchange Traded Funds (ETFs)

1) ETFs Are Similar to Individual Stocks: Like MFs, ETF consist of an underlying portfolio of securities that's designed to follow a specific index or investment strategy. Hence, they are as diversified as various mutual funds. 2) ETFs Only Invest in Equity: Since they are listed on the exchange, the general belief is that ETF only consists of equity asset class. Globally, ETFs are available across asset classes – equity, debt, commodities, real estate and so on. In fact, over the past couple of years, India has also seen the emergence of Gold ETFs. 3) All ETFs Are Index Funds: ETF started as a fund which used to track indices and hence they were branded as index funds that are listed. However, ETFs have progressed rapidly and are no longer associated only with passive index funds. Globally, we have seen the launch of actively-managed ETFs. In India, also we recently saw the emer gence of fundamentally-weighted ETFs on Nifty, which busts the myth that ETFs are index funds and can...
Read more

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...
Read more

REC Tax Free Bond Issue

Tax Saving Mutual Funds Online Current open Infra Bond Application form   Download REC Tax Free Bond Application Forms REC (Rural Electrification Corporation) is going to issue tax free bonds and the issue will open on March 6 2012 and will close on the 12th of March 2012 When you buy 80CCF infrastructure bonds, the amount you invest in those bonds get reduced from your taxable income but in these bonds that's not going to be the case. The interest on these bonds will be tax free and they are similar to the other tax free bonds like the HUDCO, NHAI and PFC issues. For the two of you interested in knowing this – these bonds are tax free under Section 10(15)(iv)(h) of the Income Tax Act. Now on to the issue itself and let's start with the high credit rating that the issue has got. The REC tax free bond issue has been given the highest rating by all issuers since the government owns the majority stake (66.8%) in REC, it has been consistently profit making,  this is a se...
Read more

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now