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Pay off your credit card debt

How these credit facilities make you fall prey for the debt trap

by Holistic 1 Comment | Filed Under: Credit Card

Life’s little surprises always bank on credit facilities. Raj, a 35 year-old executive built his dream house which he financed through credit. To meet his new lifestyle requirements, he went on a spending spree adding more electronics to his foray through his credit card. Little he did realize that his debt slowly was snowballing to a huge sum.

Be it your car’s sudden overhaul, a mobile upgrade or an unexpected medical expense, credit is the immediate answer for many. But beware that these credit opportunities are just sugar-coated debt traps.

“Debt is like any other trap, easy enough to get into, but hard enough to get out of ”.– Josh Billings

Table of Contents

  • How do you know you are slowly falling into the debt trap because of these credit facilities?
  • Falling into the debt trap by exhausting the grace period
  • Falling into the debt trap by exercising the credit limit
  • Falling into the debt trap by lagging in payments
  • Falling into the debt trap by the flat rate
  • Falling into the debt trap of advance EMIs
  • Falling into the debt trap laid by the loan agent
  • Falling into the debt trap because of fake promise
  • Falling into the debt trap because of scams
  • Understand how these signs lead you to the debt trap
  • How can you overcome this habit and avoid the debt trap?
  • Bottom line

How do you know you are slowly falling into the debt trap because of these credit facilities?

Well, there is no one answer to this tricky question. There are some signals which we need to lookout for and get back to the track before things go awry. Read on to learn some of the signs of the debt trap.

Falling into the debt trap by exhausting the grace period

What most of us don’t realize that most of the lenders have a grace period for making payments? While these additional days do make us feel great initially, the feel-good factor doesn’t last long. Taking advantage of the grace period can be dangerous. Use these days only for those little mistakes that happen in life. Routine deviation from the actual payment dates is the first sign of danger towards the debt trap.

Take a minute to check yourself. In the last 3 months how many times, you have used the grace period for paying your credit card bills, utility bills, insurance premiums, and the like. In case if you miss the grace period also, then you may need to pay a hefty amount as penalty or interest. This is how most of us fall into the debt trap unknowingly.

Falling into the debt trap by exercising the credit limit

Credit cards allow you to spend money you don’t currently have, and to repay what you’ve spent over time instead of all at once. At the offset, when we make small purchases it seems easy to pay them off. The real trouble of the debt trap begins when we start to pay only the minimum charges which barely cover the finance charges. Every small unpaid amount can accumulate over time and when the outstanding balance begins to march north, the ratio of the ‘credit used’ to the ‘credit available’ goes awry. Refrain from pushing your credit limits too far.

Falling into the debt trap by lagging in payments

This is the most obvious time for you to ring the alarm and awaken yourself from being caught in the debt trap. What might seem to be an acceptable exception for delayed payment for once slowly turns into a practice, tending towards an insurmountable debt. Adding fuel to the fire is when we are levied late charges and penalties for paying only the minimum amount.

Falling into the debt trap by the flat rate

The flat rate always makes people fall for it. Flat rates seem cheap but only a few customers realize that it does no good for loans with EMIs. In the flat interest rate, the interest rate is calculated on the full amount of the loan during the entire tenure. It does not consider the monthly EMIs paid, which gradually reduces the principal amount.

As EMI reduces the principal outstanding, these loans should be assessed on the reducing interest rate. The next is the loan processing fees. It is usually 1 to 2% of the loan amount but this can effectively increase the rate of the loan.

Falling into the debt trap of advance EMIs

Here the customerrs are asked to pay two EMIs in advance. Eg: If you take a loan of Rs.6 lacs at 10% for 5 years, your EMI comes to Rs.12,748. If you pay two EMIs in advance, the net loan disbursed reduces to Rs.5.74 lacs, still, you will be charged for the 6 lacs.

They have ready answers if the customers question them. They distract the customer by pointing to him a mistake in the form, ask for an additional document, or talk about some other features. This is why they make the loan application process very fast. They don’t let customers read and understand the clauses in the loan document. The terms and conditions are anyway given in small font and they are asked to sign quickly.

RBI has asked banks not to charge foreclosure charges on floating-rate loans. The foreclosure charges would be mentioned in the loan agreement but you would have missed reading it if you were in a hurry to sign it.

Falling into the debt trap laid by the loan agent

bank loans When a customer takes a loan, the loan agent earns a commission. But they earn even more when they sell an insurance policy. And so, they sell single premium term plans along with home loans. The insurance policy covers him and pays off the loan if something unexpected happens to him. The premium payable gets added to the loan amount. These policies are structured in a way that the death benefit comes down as he pays the loan.

A regular term plan with annual premium payments (though costlier) is better compared to a single premium insurance cover linked to a loan. If the loan is foreclosed or transferred to another lender, the insurance contract ends.

Selling insurance with a home loan is legal. However, you need not necessarily buy this type of insurance. A bank cannot compel you to buy insurance from it.

Falling into the debt trap because of fake promise

Loan agents get higher commissions if they sell costlier products. For example, car salesmen get higher rewards if they manage to sell a bigger car. They try hard to convince a customer to spend more. They would compliment you about your good taste and lifestyle, just to hit your ego and make you spend more (whether you require it or not).

Verbal promises made to you at the time of sale have no meaning once the transaction is completed. You will come to know later that the extended warranty comes with terms and conditions applied.

Falling into the debt trap because of scams

These fraudsters call you and offer you loans with very attractive interest rates. Once you take the loan, they charge a processing fee or file charges. Once you pay that, they will ask you for more money on some other pretext. This will go on until you stop paying and ask them to disburse the loan and then they would disappear.


Another type of scam is where they say 0% interest on loans. There is obviously a hidden cost. They just want you to buy an insurance policy from them and they keep it as collateral (This is a lie because insurance without a paid-up value is nothing). The idea is to sell you the insurance policy. Once you buy it, they act like processing the loan. As soon as the 30 days free look period to return the insurance policy is over, they will stop taking your calls.

Understand how these signs lead you to the debt trap

As your debt increases you will soon end up in a debt spiral, which affects your financial position gravely.

  • Exceed your budget – Paying through plastic money ruins your judgment on how much you are spending and results in overshooting your monthly anticipated outflow.
  • Worsen your woes – Unplanned and unwise rolling over of credit to meet immediate demands slowly gets you into the vicious circle and worsens your woes.
  • Unavailable funds in dire needs – Having a bad credit history negatively affects your credit score and impends your chances for loan approval at the time when you genuinely cash strapped.

Understand the consequences you will face due to this debt trap:

Apart from a bad credit score, the debt trap will impact in the below areas.

  • Ruins your career – Bad credit is just the tip of the iceberg. Apart from being stressed to pay up your dues, it can tarnish your image in the society.
  • Affects family relations – It can estrange the relationship due to less available income for family needs.
  • Draining the financial ability – Overdose and rolling over of credit may limit your repayment ability which may further result in legal battles and litigations.

Basically, it can lead to the financial stress of two kinds – drains the relationship between you and your spouse, and in dollar terms, strains your financial ability. The total quality of your life goes havoc.

How can you overcome this habit and avoid the debt trap?

“If you fail to plan, you are planning to fail.” Benjamin Franklin. The key to any problem lies in planning. To ensure that the much sought after boon of today’s time – credit, does not turn into a bane, you could try:

  • Expect the unexpected – Create an emergency reserve through an annual or periodic transfer from your income. It helps you meet your sudden car, home, or medical expenses.
  • Accumulate a sum for anticipated annual expenses like school fees, higher education, and insurance. It improves your liquidity position in times of need.
  • Not biting more than what you can chew. Develop a plan which monitors your spending activity. This helps you to be more aware of your personal finances and avoid lag in monthly payments.
  • Try to convert your outstanding dues into convenient equated monthly installments.

Bottom line

Credit is a bouncing ball, the harder you throw, the faster it rebounds.

We cannot even imagine a life without a credit card nowadays. But it’s never too late to take steps toward building healthy credit; it clears confusion, adds clarity to your financial planning and results in better financial life for years to come.

Take an effort to get out of the debt trap right now. The longer you put it off, the harder it will be to get out of debt and to pay everything off. The hard work is worth it, and when you are debt-free, you will have more money in the monthly budget. A debt pay-off plan helps a person become debt-free. Similarly, a complete and comprehensive financial plan will help you achieve financial freedom. If you want to understand our 360-degree financial planning process, we offer

Skip the queue by registering for your 30 Minute FREE Financial Plan Consultation. Click the ‘‘BOOK YOUR SLOT NOW!’’ button below. 

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Comments

  1. Krishna Prasad says

    March 14, 2018 at 8:59 am

    I really like the way you have presented it.

    Reply

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Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

Google Reviews

Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

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