Fast and easy loan involves high risks for the bank or institution that offers them. This happens because those who need loan facilities are, most of the time, people in complicated situations, such as those already stuck in debt and / or with the dirty name in SPC / SERASA.
The higher risk for financial institutions and banks translates into higher interest rates for those who need the loan. Well, higher interest rates, by the way, may even rival credit card interest rates in some cases.
The Debt Trap
If a person went into debt and needs a loan, with rare exceptions, this was due to previous financial mistakes. Debt is a fact of life for many people and companies, and a certain amount of debt is normal and financially healthy. However, some people fail to pay their debts, causing a harmful cycle of loans known as a debt trap.
The debt trap is a situation where a bank or financial institution borrows money but does not have enough money to make interest payments on the loan, so it takes another loan to cover the first loan payments. So probably the person or company will have to ask for a new loan to pay off the second loan, creating a disabling financial cycle.
Consequences of easy and fast loans
Individuals who fall into a debt trap will be harassed by collection agencies and unable to save any of their money unless they get a significant salary increase. Of course, a person has the option to stay 5 years with the dirty name and then, if they see the name clean again. But this can disrupt and even completely prevent you from having a financial life for 5 full years.
For a loan to be fair, that is, to have affordable interest, the bank or financial institution needs to ensure that the beneficiary can pay the installments of the loan. They have the ability, the means and the professionals who can analyze your financial situation and know exactly how much you can afford monthly and what maximum loan amount you can get.
While the loan may be the ticket for rapid growth, it can also end your nights of sleep. Some signs show that you may be getting closer to the debt trap:
- Little or no savings on your accounts;
- Pay only the minimum amount of your credit cards;
- Use most of your monthly income to pay off your debts;
- Taking loans from different sources to pay their debts;
- Checks returning a few times.
If you are in the situations above, it is the signs that indicate, first, that you are financially vulnerable to easy and fast loans. Second, they indicate that you are getting into the debt trap. Third, they indicate that you have serious problems in managing your finances effectively.
When dealing with loans, planning is necessary to get out of debt traps. (Photo: www.asiaeu.com)
Organize Your Financial Life Before Borrowing a Loan
If you are in debt, especially those who are already paying off debts, you should view your financial situation appropriately, noting:
Loans and financing according to risk and interest
Personal loans and credit cards fall under the category of higher risk and higher interest rates. Loans for real estate and vehicles are lower risk and lower interest rates. Whether you have a loan or not, you should understand that if you have access to or already using these financial market services, you are in debt and can potentially be ever closer to the debt trap.
Reduce your unnecessary spending and save some money to pay off your debt and high interest loans. You may have to live a moderate life for some time to get out of the debt trap.
You should increase your earnings through studies, a promotion at work or get a second source of income. This may mean putting more family members to work, taking a part-time job or other similar means to increase your financial resources.
“Burn” your low-risk investments
Fixed deposits, savings account, CDBs, which have lower rates of return should be drawn to pay off your debts before resorting to a loan. After all, loan interest rates are much higher than any fixed income income can provide.
Understand the loan as a necessity, not as a desire
Every loan must be planned before it is confirmed. It should be one of the last options to pay off debts, be it planned or emergency. Avoid borrowing for luxury expenses, shopping or vacations, and especially for parties.
What loan amount can you afford?
For you to get a loan, you have to know how much you are able to afford. Experts recommend a limitation of 10% to 20% of their net income for loans.
Net income here is all your earnings, salary, monthly fixed income and revenue MINUS your normal monthly expenses, including electricity, telephone, internet, rent, transportation, food, gasoline, school tuition and all the costs of your day to day.
Try to get a low cost loan to pay off your debts?
Taking a personal loan to pay higher interest debt is a good idea and makes sense, since some interest rates, such as a credit card, are much higher than personal loan rates. You should plan and think VERY well before taking out a loan but never with interest greater than your current debts and never in a place that offers quick and easy loans.
In our fast-paced consumer culture, the truth is that anyone who maintains a slow, steady pace wins the race. Simple decisions such as not spending more than earning and learning to put off shopping until you can pay for them in cash, helps a lot to get the financial house in order. In most cases, the biggest challenge we face is not financial but the need to curb your craving and enjoy what you have.
How do you plan to deal with your debts? Have you ever been in debt that you could not escape?