Debt Traps
When a person is unable to pay back a loan, they may find themselves in a challenging situation known as a "debt trap".
In the first statement, a debt trap is described as a situation where a person is unable to repay their loan and is forced to borrow again, resulting in a cycle of debt. In the second statement, the nature of loans is discussed, where both the principal and interest must be paid off through a process of gradual repayment known as amortization.
If you can't make your loan payments regularly, you will default and become trapped in a cycle of debt. As a result, the principal amount owed will not decrease, and the interest will continue to accumulate, making it extremely difficult to repay the debt.
Ways to avoid it
Identify the problem and tackle it
Use a budget
Debt Consolidation
Reguliarize online payment
Stop borrowing
Pay bigger loans first
Seek professional help
Try ways of increasing income
Reasons
Borrowing too often
Overspending
Taking more loans to pay off existing loans.
Relying on a credit card most of the time
Poor financial management
Unforeseen expenses