Debt Trap Definition | CashAmericaToday

Debt Trap

A debt trap is a situation where borrowers find it impossible to pay back their debts because of high interest rates. It becomes a cycle of re-borrowing for the borrowers as they keep on rolling over the due dates and repayments.

Types of Debt Traps

The best way to avoid these debt traps is to know about them completely. Let us know some of such loans that end up being debt traps for the borrowers:

Payday Loans are the best emergency loans that can be availed within one day. But, these come with soaring interest rates and it increases higher with every rollover.
Credit Cards are the next famous types of a debt trap. If you fail to manage your credit cards and fail to make timely repayments, then it can ruin your financial condition.
Car Title Loans come with greater risks. If you fail to pay back your loan, your car will also be retained by the lenders.
Mortgage refinancing is a better option, only for the ones with the best credit score. Because they are the only ones to receive it at lower rates.

Ways to Avoid Debt Traps

Try your best to pay back your loans on time and ask for no rollovers.
Never use your savings to pay off your scheduled debt repayments. Keep them for emergency situations of life.
Try utilizing your extra funds for paying off one debt at a time rather than paying off for all other debts.
Don't get into the traps of credit cards when they offer extra rewards on spending a certain sum of money, which otherwise you would not have spent.

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