Why to Read ‘Debt Management’
If you just have started your career or you might be in the middle, debt trap should be the main concern of yours. Most of the people tend to avoid this topic and finally they find themselves trapped in debt cycle when they start taking loans to pay the previous loans.
Debt trap is very common in everyone’s life if you don’t take it seriously. Most people believe that debt is the situation arises from less income. No, thats not correct at all if you aren’t concerned about this no matter how much you earn you will eventually fall into it.
Rcom fell into it which belonged to world’s fifth richest person according Forbes magazine in 2008. So, I can assume you won’t be earning more them him and if you do earn more then him. Then this is for you for sure.
What will you Learn
Here I have mentioned 9 signs that will show you if you are falling into the debt trap or not. It’s better to avoid it by applying needed steps before you go bankrupt. And if you haven’t a brother like Mukesh Ambani who can help you, than this gets must for you. In a survey we found that at least 15% people had an EMI outgo of more than 50% of their total income. And you will surprised to know that 32% of those were belonged to senior citizen category.
Here one thing needs to clear that Debt is not a bad thing but you need to plan it properly. You need to have a plan about how you are going to pay it and that must solid.
Read the important signs one by one and see if you are following any of them, if you do please try to cut that short.
EMI More than 50%
When you are following the luxuries and don’t care about other things. You fall prey to ‘offers’ ‘discount’ ‘sales’ and ‘0 EMI’ advertisements.
Most of the new comers when they start their earning career without any debt and Investment planning, they start spending blindly on costly gadgets, cars, technologies, etc. EMI looks an easy option to buy these things but what happens later.? Don’t exceed your EMIs more than 50% of your total wealth.
70% Income<fixed expenses
EMI are one option or example of this but there are other expenses also which we face during a month. All these fixed expenses must not go more than 70%. Though the Ideal FOIR (Fixed obligations-to-income ratio) is around 50% but still if you are increasing your expenses you can go till 70% for short term.
School/college fees, Rent, EMI, etc.
Regular Expenses = lending
I like to call it more of a hostel life. When we used to be in hostel orcollege we often used to found ourselves empty pockets at the end of the month.
If you are experiencing such a situation, you are falling into debttrap. If you are facing a situation when you need to borrow for the regularexpenses, you need to see you expenses policy.
Loan to pay Loan
This is the second stage where you make your debt wall stronger. Taking loan for paying the previous one is the worst situation and the red signal where you seriously need to cut short your expenses.
Cash from Credit card
Though Ibelieve that this whole credit card functionality is a trap, but if you areusing it, use it intelligently. Over using of credit card is the best way tomake you throw into debt trap.
Takingloans for your regular expenses is the worst situation but when you use yourcredit card for this, you are clearing your way to the trap. Withdrawing cashfrom it is the best sign that you are soon going to fall into the debt trap.
Leaving the credit card dead
When you cross the limit and leave that dead, that’s what makes surethat you fall in the trap soon. First of all it’s not a good strategy to useyour credit card for regular expenses but when you use it, please make surethat you clear your dues as soon as possible.
Banks refusing loans
If you want to know how deep you are fallen into the trap, bank rejecting your loans is the best sign. If your credit score is falling, you need to worry. If you don’t know credit score ranges between 300 to 900 and around 750 is the ideal credit score.
Go check your credit score.
Also Read:- Five Things to Quit NOW; Success Path
Escaping Utility bill payments
Missing them once in a while is not bad, butknowingly escaping is a red signal. You may be spending more than you need to.Utility Bill payments are considered while calculating your credit score.Electricity bill, water bill, Gas Bills etc. are needed to be paid on time.
Borrowing based on future on Income
When we were discussing about taking loan forpaying loan, this is the second point in that series. When you take loans to start a business,don’t plan the loan repayment from the business income. You never know how muchtime it can take in its establishment and start generating income.
If you are borrowing based on your current income that’s totally fine. Because you can pay it from this income. But if you are taking it on the basis of your future income that’s a red signal, you might fall into the trap.
I Hope now You have a lil better understanding on Debt Trap signs and how You can manage Your debt. If you want more from Us Just comment Below.
These 9 signs are the most important points to keep in mind always. You read them, now it’s time to check your credit score and debt situation. If you think you are following in of them, consider changing your expenses policies.
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