Here, we will discuss 5 steps to get out of debt trap
These steps will help you reduce the financial burden of debt
These steps will help you lead a normal financial life
If you are in a debt trap, suffering from high debt burden you must be saddled with high interest loans
This could also be due to a pay cut or a job loss
However, one of the major reasons for being in a debt in a trap is typically high interest loans
Remember, interest of loans and the EMI are your fixed costs which you need to reduce
To do that either you need to repay the loan completely
Or, you could try and part-prepay the loan
The other option is to take lower cost or lower interest loan with which you repay the high interest loan
Then, you focus on repaying the lower interest loan
So, you replace costly outstanding on credit card with a personal loan whose interest rate is typically lower
You can also explore the route of balance transfer
Typically, balance transfers happen for credit cards and home loans
Here, you take outstanding balance of any loan to another institution charging lower interest rate
The next step is to take a lower cost loan to pay off medium cost loans or smaller but expensive loans
These are typically personal loans and also called as debt consolidation loans
And then you can focus on repaying them
Check out our presentations on debt consolidation loans
If you can't get any personal loan due to your financial state, go for a secured loan or loan against assets
You can consider taking loan against property, idle gold or gold in the form of gold coins or gold biscuits
You can take loans against fixed deposits or FDs or loan against mutual fund units
With loan against asset you repay the expensive loan and then focus on repaying the loan against asset
You can check out our presentations on loan against assets
You can try and extend the tenure of your loan
This will reduce the EMI of the loan
If this is difficult to do for an existing loan, you could try and take a loan against asset
This would be loans like loan against FD, loan against gold, loan against mutual fund units
If you repay the expensive loan with say, a loan against property, you can ask the lender for a longer tenure
There you can have negotiating power since you are taking a loan against an asset
If the above four steps don't work, you are left with no option but to sell off or liquidate some asset or investment
This could be a property or idle gold, among other things
You can part repay or fully repay the outstanding loan
You will then need to repay the loan against asset in a disciplined way
Once you fully repay this loan, you can make the regular repayment discipline into one of regular investment