A debt trap occurs when a borrower is compelled to take out more loans in order to pay off previous ones. In essence, a debt trap happens when financial responsibilities outweigh a person’s ability to repay loans.

Managing and preventing debt

Any financial trap can be difficult and stressful to escape. Planning for the present and future financial demands is essential, as is only taking on debt that one can afford to repay in order to avoid becoming caught in a debt trap.

For instance, it could seem sensible to merely pay the minimal amount owing on credit cards or to make partial payments. However, if a borrower keeps up this bad habit over an extended length of time, the high-interest fees might soon trap them in debt.

Analyzing the many forms of debt incurred is one of the most important techniques to manage debt. Additionally, the optimal way to manage debt will depend on the overall tenure, the individual interest rate of each obligation, and the total amount owed.