Caught in a debt trap? Here are a few things you can do to get out of it

Debt, Loan, Banks. Photo: iStock
Most borrowers going on peer-to-peer (P2P) platforms are seeking loans for debt consolidation and home renovation, according to data from LenDenClub, a P2P lending platform. It’s common for youngsters to run up debt, especially on credit cards, and then look for further loans to repay it. The highest number of borrowers on P2P platforms lie in the 25-34-year age group. The Reserve Bank of India’s data also shows that credit card outstanding and personal loans have been growing every month for the past few years. If you are caught in a debt trap, here a few things you can do to get out of it.

  • Borrow against life insurance policy and other financial instruments that may have a high exit fee as secured loans are cheaper (9-14 per cent)
  • Approach credit card issuer to convert dues into a personal loan
  • Interest rates on personal loans are 15-22 per cent while on credit card they are around 48 per cent
  • If you have a home loan or car loan along with credit card debt, try to increase their tenure to reduce monthly outgo
  • Reducing the monthly outgo will increase your ability to raise more funds
  • While paying loans, start with the most expensive ones — first, credit card outstanding, then personal loan, car loan and finally home loan
  • Never resort to paying just the minimum amount mentioned in credit card bills

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