THE DEBT TRAP: Break Free From Financial Shackles And Own Your Life
The debt trap goes in inescapable circles. When trapped in one, you can neither grow nor move forward as stagnancy is bound to happen. This article highlights factors that could lead one to get into debt traps, how to avoid it and when in one, how to escape from it.
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We know the popular saying that ‘Life happens’ and understand that life can get tough at some point. Adamu hides from his landlord whom he owes the sum of twenty-five thousand naira, he goes ahead to meet his neighbor Dele who has a family and also owes another person the sum of one hundred and fifty thousand naira; to lend him some money. Mr. Coals took some loans from loan sharks to stock up his shop, he however did not make great sales enough to pay off his loan, so he went to borrow money from another source to pay off his first loan. Mrs. Arapa depends solely on her salary, when it is exhausted, she buys some foodstuffs, wears and even toiletries on loan, and waits till she gets her salary to pay off her debt. When her salary gets paid eventually, she pays off the debt, stocks her house for the month, settles her bills and the remaining money goes into her upkeep and transportation to work. When the salary wears off, she borrows money again and waits till another payday to pay back. The circle of loans goes on and on, and debts pile up non-stop, leaving no choice of savings or financial growth.
Constant financial pressure arising from the inability to meet debt obligations, or the burden from unending payments of interest can impact one’s overall well-being negatively.
This article addresses what a debt trap is, how one can end up in one, how to get out, and how to avoid it.
What is a Debt Trap?
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A debt trap is a situation where an individual suffers an unending and vicious circle of debt. A circle of debt is a recurring situation of taking more debts to settle previous debts. When you continually take on debts more than you can repay, you take on debts to repay debts, you depend on your paycheck to pay off your debts just to get another one, then you are trapped in debt.
Several factors can lead to falling into a debt trap, they include:
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1. Financial Instability: This is a situation whereby an individual, family, or business, experiences challenges in maintaining a stable and regular source of income. One can become financially unstable through unemployment, underemployment, irregular income, lack of savings, and inflation.
2. Financial Mismanagement: This is a situation whereby an individual or business, makes poor decisions that lead to mishandling of funds and eventually, loss of funds. This can occur when one fails to create a budget, spends above a budget, or does not make proper financial planning for their finances.
3. Medical Expenses: A benefit of saving money is to be able to handle days when financial emergencies arise. One such days include emergencies that require medical bills. Getting caught in such situations without saving could lead one to take up loans upon loans.
4. Lack of Financial Literacy: when one does not have sufficient understanding of financial concepts or does not seek advice from financial coaches, they are likely to make poor financial decisions like making risky investments and running at a huge loss.
5. High-interest Debts: another way to keep falling into debt traps is by acquiring debts with high interests. It means that whilst you are trying to pay off your debts and as well pay your bills, your interest rate is increasing and the longer time you take to pay the debt off, the higher the interest becomes, then the circle of struggle continues.
Now that you have finally realized that you’re in a debt trap and how you got into it, how do you get out?
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Here are steps you can apply to get out of that trap:
2. Cut down your Expenses: In other words, manage your resources, at least for the time being. Spend only on what you need and not what you want. For example, put out all appliances that you are not using but consume power, you wouldn’t need to pay for a power supply every time. Also, if you take beverages every day, reduce it to thrice a week or if you wash daily, try to wear clothes that would not require much detergent to wash, there you wouldn’t need to spend much on detergents. With this in mind, you would not be spending much on bills, allowing you to channel your energy more toward your debt.
3. Create different sources of income: it is almost impossible to exit the debt trap with just a means of income, especially when the income is just average compared to the debt you owe. You can create more than one income source by taking up part-time jobs, selling products online, or freelancing. For example, you could offer your writing skills or even the skills you display at your main job; on freelancing websites, to different clients and get paid by all of them. This might seem stressful at first but with proper planning and time management, you would be just fine.
4. Be Diplomatic with your Creditors: You are in a trap, with little or no way out. You cannot afford to play smart with your creditors, and neither can you hide forever. Try to have a conversation with them, tell them your situation in all honesty, and cajole them into extending your repayment time or reducing the interest rates on your debts.
5. Seek Help: It is understandable if you feel ashamed to let your friends and family see you in debt. The shameful feeling would not solve your problems, speaking out and asking for help would. Explain your financial situation to your friends or family, seek their support and you might just be lucky. However, if you cannot bring yourself to do that, then seek professional help. Ask for advice from financial coaches or debt relief agencies, they would provide you with adequate financial help, follow-up, and execution.
After scaling through the life-threatening, mentally draining, and stressful debt trap, you don’t want to fall into it again, right?
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Avoid debt traps in these ways:
- Open savings account: save for “raining days” they say. By saving, you build an emergency fund that you can fall back on in case an emergency medical expense, property repair, or any form of unplanned settlement comes up. If you find it difficult to save without breaking your savings, then try out phone apps like Cowrywise or Piggyest and set your savings such that it only allows you to break the savings at the set time, say in six months and not before then.
- Live Within your means: know your reality and live within it. You don’t have to live like a rich person when you aren’t, and there is no need to show off as expensive when your income is not above average. Maintain a simple lifestyle and do not go outside your financial capacity.
- Avoid Taking Payday Loans: These kinds of loans are short-term, with high interest rates, and they are mostly offered by loan sharks, online lenders, and credit unions. These sets of people create fear in debtors and try every means to get them to pay which include physical or online harassment. This fear instilled in them could make them lose the right direction in dealing with the debt and thereby make more financial mistakes and poor decisions.
CONCLUSION
Knowing all these tips alone would not help improve your financial status or keep you from debt, you have to put in efforts to plan for the future, stay disciplined and committed to your financial goals, identify and curb your bad habits, and be contented with what you have.
Take over your life now and break free!
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