Clix > Personal > Signs of a Debt Trap Situation and How to Overcome It Using a Debt Consolidation Loan?

Signs of a Debt Trap Situation and How to Overcome It Using a Debt Consolidation Loan?

Clix September 1, 2021

 

If you find yourself caught up in the circle of borrowing, paying back, and re-borrowing because you are not able to afford payments on time, you are probably caught wedged in a debt trap. It is a situation where you cannot repay the loan amount you borrowed, and you have to borrow more to repay them. During such times, one possible solution seems to be an emergency personal loan. You may apply for a personal loan for debt consolidation and consolidate your existing loans to repay them faster while saving money.

Let’s look at a few signs that indicate that you are in a debt trap situation and how you can overcome it using a personal loan for debt consolidation.

How Does a Debt Trap Work?

When you take a loan, you have to pay back the principal amount you borrowed and the interest rate applicable to it. You can gradually repay your loan only when you start reducing the principal amount.

Your loan EMIs have amortising structures that consist of both these elements. This means that when you pay your EMIs, you pay a small part of both your principal amount and your interest amount. However, when you fail to make your payments on time, you will likely get caught up in a debt trap. Your principal amount does not get reduced, the interest keeps piling up, and it becomes impossible for you to pay off the loan over time.

Signs of a Debt Trap Situation

It is crucial to identify the signs of a debt trap in its initial stages so that you can fill up an online personal loan application in time and gain control over the situation. Here are a few signs of deb trap to look out for:

    • Your DTI Ratio is More Than 50%

With personal loan instant approval readily available these days, many people have turned into compulsive spenders and borrowers. Easily falling prey to sales and discounts, they end up making expenses on EMIs. Although these EMIs may look small, when added, they can make up a considerable amount, leaving you with less money to cover your everyday expenses. If your financial obligations exceed 50% of your monthly income, you are on your way to getting into a debt trap.

    • Your FOIR is More Than 50%

Your EMIs are not the only financial obligations. You have to take care of other expenses, including your utility bills, school fees, rent, insurance, and others. Ideally, your fixed financial obligations-to-income (FOIR) ratio should not be over 50%. If your ratio is more than 50%, it can be a sign of a debt trap.

    • You have High Credit Utilisation Ratio

Credit cards have a credit limit within which you can spend money and make purchases. However, ideally, you should not use up more than 30-40% of your credit limit. High credit utilisation ratio indicates that you are dependent on credit for your expenses, especially if you fail to pay your credit card bills by the month-end. If you have a high credit utilisation ratio, you could be entering a debt trap.

    • You are Handling Too Many Loans

If you handle too many loans and pay several EMIs every month, it can be exhausting with higher chances of defaulting. Besides that, you might be losing a significant amount on the interest rate as well. Therefore, too many loans at a time indicate a debt trap.

    • You Are Not Saving Anything

Are you not saving anything every month? It might be because you have no money left after paying all your debt EMIs and other fixed expenses. This is another sign of a debt trap.

    • A Lender Rejected Your Loan Application

If a lender has rejected your loan application, it might be because the lender checked your credit report and found you as a high-risk borrower. If you have a high DTI ratio, the lender may perceive that you may not responsibly pull off more loans. Even if a lender agrees to lend you money, they may offer you a lower loan amount at high interest rate.

Overcoming Debt Trap with Debt Consolidation

Rather than repaying several loan EMIs on different dates of a month, you may consider consolidating your high-interest loans with a low-interest personal loan. Now, you need to manage only one payment every month. By consolidating your debts, you can save money on the interest rate, pay off your debt on time, and get out of the debt trap. An emergency personal loan is an unsecured loan that you can avail without pledging any collateral, security, or guarantor. Therefore, you can get personal loan instant approval for debt consolidation without putting any assets at stake.

How to Apply for a Personal Loan for Debt Consolidation

Are you looking for a personal loan for debt consolidation? You can carry out the online personal loan application procedure at Clix Capital by following these steps:

    • Visit the Clix Capital website
    • Check your credit scoreand ensure that it is more than 725
    • Fill up the Personal Loan application form
    • Get your personal loan documents verified online, which takes just a few minutes. However, if your KYC is not updated, you will have to provide some necessary details
    • Once you receive your loan approval, accept the loan offer
    • Activate the e-mandate for regular EMI payments on time

Clix Capital offers personal loans of up to ₹25 lakhs that you can repay in 12 to 48 months. Fill up our online personal loan application now and get your personal loan instant approval in 15 minutes*. When you find yourself getting into a debt trap, it’s best to consolidate your debts and manage them in time.

For any queries, find us on Facebook, Instagram, LinkedIn, Twitter, or WhatsApp

You can also reach out to us at hello@clix.capital or call us at 1800 200 9898

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