Financial Health and Debt Trap in India

Indian economy is at the stage where the economy is growing by leaps and bounds. The economy needs ample amount of funds for the progress. The Indian economy which is mainly backed by the companies for the revenue streams lacks in the investment part. To fill this gap the banks and other financial institutions provide funds to these players to run their companies in the form of loans. Loans are a form of financial support offered by financial institutions such as banks against the mortgage. Loans are of many types and serve many purposes. In India, the top 10 companies are ranked 11-20 by the banks in 2016 by their attitude towards the repayment of the loans giving them a headache. The top 10 companies in India reported a combined profit of 260.77 billion which is lower than their interest obligation which is at 303.51 billion.

But for a loan, you need eligibility like you need to be eligible when you walk in for an interview. You need to take care of certain things. Firstly you need to check the requirement of your loan that the need is a priority or not for you to fulfill at the moment. Secondly, you need to check your CIBIL score. CIBIL score is the creditability score that a bank checks before lending a loan to an individual or an organization. Lastly, you need to check the interest rates so that it becomes easier for you to repay the loan.

Also, according to some surveys by Indian Financial organizations who control the cash flow in the economy reported that one-third of the organizations who apply for a loan are unable to return it back. Such a situation is known as a Debt Trap.

A debt trap is a situation where an individual or an organization who has applied for a loan is unable to return it back and takes more debt to clear the previous one. This results in a trap situation. The very famous example of this that can be given is Vijay Mallya. Most of the start-ups in India are unable to fill the requirement of investment for their businesses and organizations. This leads to a situation of borrowing unsecured loans from banks.

Unsecured loans are the loans where you don’t have to keep any asset as a mortgage or any kind of property that you own. Whereas if we look at secured loan such as loan against property where the property is kept as a mortgage for the loan borrowed. These types of situations not only occur in this but also at the time of personal loan too. But, for the increase in the cash flow in the economy and to remove the debt trap here are the steps that you can follow:

Here are three ways to get out from the debt trap and to become eligible again for borrowing a loan for the further needs. As borrowing is loan is not a bad thing but it should be borrowed wisely and in a proper manner.

Start to prioritize:

It’s better to start prioritizing your loans that in which manner you are going to repay them. There can be two ways of repayment of the loan either you can pay them from the costliest to the cheapest or the cheapest to the costliest which gives us a better idea how to smartly deal with the loans. Credit card loans are the highest ones with the interest rates going as high as 40% on the failure of the repayment. So you should pay them initially if you are having one.

Consolidate the debt:

If some of the loans have cheaper interest rates then you can go for them to repay the current debts. Such loans become favorable for you. For instance, the loan against property is available at the interest rate of 16-17% which is comparatively lower than the personal loans and the credit card rollovers. You can get loans against the assets you hold which will help you to lower your interest rates

Make sacrifices:

You should be flexible in such times as only good strategy towards such a trap won’t get you out of it. You should be disciplined and punctual in paying back your loans which make your burden get away. For instance, you can rely less on credit cards for some time and do the transactions on cash. You should have a record of what assets you hold and should be able to sacrifice them for the repayment of the loan. Also, you should cut down your daily expenses to repay the outstanding payments.

Also, you must not inquire more for the loans and another lending by the bank as this may affect you CIBIL score because all things get recorded in the CIBIL department. More overly, you should have the correct attitude at this time.

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