InvestorQ : I often hear about debt trap with reference to personal finance. What does a debt trap mean and why it is a worry?
Aditi Sharma made post

I often hear about debt trap with reference to personal finance. What does a debt trap mean and why it is a worry?

Answer
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Aashna Tripathi answered.
1 year ago


A debt trap is when you are surrounded by debt and that is usually high cost debt. Debt is ok as long as it can be managed and serviced without too much difficulty. When the payables on a debt start exceeding your sources of income that is when you fall into a debt trap. A debt trap can have serious repercussions on your credit rating, your credit score and your ability to get loans. That is why a debt trap is best avoided. When your loan servicing is taking away more than 50% of your disposable income, you can be sure that you are approaching a debt trap. That is the time to be careful and take corrective action immediately.