What is a debt trap?

debt traps are financial situations in which consumers or business entities accumulate debt to achieve the goal, but ultimately have created further financial problems. Getting a debt trap can be extremely difficult and require a considerable amount of time and effort. For people and companies that are unable to create a strategy to overcome the collected debt, it is often bankruptcy from the trap.

Consumer debt trap can be created in one of several ways. One example has to do with the loan of the debt consolidation to retire a collection of credit card and other debts. This approach can work very well if the interest rate of the loan is lower than the cumulative retirement debt rate and these credit accounts are not renewed. When more debts are collected in these accounts, although the consumer still pays for a loan for debt consolidation, a financial trap that often leaves an individual in a worse fiscal condition is createdu before.

For individuals and enterprises, waste trap is often associated with expenditures in the hope that it will have money to settle the debt later. The result is a burden that is very difficult to handle if these expected resources do not appear. For example, if a university student accumulates significant educational loans with the expectation of landing to work in his field to create a minimum salary within six months after graduation, and this work does not realize, student loans will become a debt trap that will be for many years.

While few households manage to avoid all types of debt, there are ways to minimize chances of trapping the debt. One approach is to manage the loan responsibly and resist the temptation to use credit lines to buy items that are not necessary. When the credit line is used, they immediately pay them to avoid accumulation of interest ashestKs. Make sure the monthly income is sufficient to cover all the basic life needs and manage the amount of monthly installment payments such as car loans and mortgages. By living in income generated by household members, avoiding any situation from debt trap is much easier to manage.

Similarly, the company can use many of the same approaches to prevent the creation of waste traps. Maintaining operating costs as low as possible and at the same time maximize profits from the products sold, it will lead a long way for the company to be financially solid. In addition, planning an extension based on conservative estimates of future investment and income creation will also maintain the chances of falling into the debt trap.