Feeling trapped in the vicious circle of borrowing and repayment? Cannot think of ways to come out of the loan trap? Once you are caught in this trap, it sure is a tedious task to get out of it easily. Typically, what leads to this quandary is when a customer takes one loan. Thereafter, the income source from where this loan must be repaid gets dried up. Then, the customer takes another loan from the market, which is used to repay the first loan.
Consequently, a third loan is taken from the market which is used to pay the second loan and so on. Thus, he continues to remain in debt and this leads to a situation, which is referred to as the 'Loan Trap'. It is wiser to know that such a situation could arise and take steps to manage the repercussions, if at all one gets caught in it.
So, if at any point in time, one is found caught in a loan trap, he/she could consider taking the following steps:
Cut down on useless expenditure: If the situation is such that income revival is going to take some time, the immediate need is to cut down on wasteful personal and household expenditure. Many people hesitate to do it, thinking that this is a small step. But big things happen when many small steps are taken together. Think of all those extras - movies, restaurants, clubs etc. - which can be cut down on but won't affect the core of your life.
Sitting and writing your expenses down would help you come up with a list and which in all likelihood could be substantial. This can surely help in bringing down your expenses by 5 to 10% in a month.
Contact your lenders: Contact your lenders to discuss getting rid of your unsecured loans through a process called debt settlement. This option allows you to pay off your unsecured loan for less than the full balance. This is only if the account is seriously past due and the lender feels you are on the verge of default.
Build your credit score: The best and easy way to build your score is to ensure that your loan repayments and credit card repayments are always in time. Use your credit card in a very limited manner. For any expense that you incur, pay in cash and limit the use of your credit card.
Engage in other activities like freelancing: Look for ways to earn some extra money. Take up freelance work according to your interests. It can be photography, writing, playing the guitar, etc. This will not only help you to make some extra bucks but will also give you time to engage in activities of your choice.
Don't let any form of depression eat you: It is important to keep oneself motivated and have a positive outlook towards the future. Hoping for a better future and taking all possible steps to move towards it, is the key. It might test your patience in the interim period, but would surely benefit you in the long term. So, keep your chin up and look at things positively.
The writer is co-founder & CEO, Loanstreet.in