Reasons why people fall into debt trap
In the beginning people usually get a loan, which they are able to repay without difficulty. Often, however, something unexpected happens over time, a person loses his job, becomes divorced or even injured, because he can’t do his job, and is put in a situation he didn’t count on. Suddenly, the domestic budget changes and there are no funds to repay. What now? Many people will start to deal with it by further loans under pressure. The problem is getting worse, debt is rising, monthly payments are increasing and the vicious circle is spinning.
Statistics are inexorable in this respect. Most people who decide to do business fail. And since starting a business usually requires investment, many people take advantage of the loan. In the event of failure in business, they remain debts for which they lack the funds. We are often approached by people who do business as self-employed. They have debts not only from loans, but also from the tax office and health insurance. If you decide to go the business, you need to consider all the risks and not take a larger loan at the beginning. It is ideal to start a business at work, and if you do well, you can gradually start your business.
Because of long-term illness or injury, people often cannot do their jobs, there is a decline or even a halt to income, and there is not enough money left to pay off claims. It is also reasonable to take this option into account when setting up a loan and to take advantage of the insurance options offered by banks for these cases.
Reduction of income
Nobody has the same amount of income throughout their lives. Monthly earnings increase, but also decrease. At the time of the loan, people are able to repay their obligations without any problems, but when the situation changes and income decreases, difficulties begin. If there is a lack of funds for regular monthly payments and the income does not increase enough even possible overtime or temporary work, it is appropriate to try to arrange with creditors to adjust the payment schedule.
Loss of employment
Loss of employment when repaying a loan is a very common reason for a debt trap. People who are unable to find a new job for a long time often solve the situation with additional loans or stop paying the original loan. Even if they find work after a while, the loan is already increased by interest or even enforced, and that is a considerable problem.
It is advisable to have a sufficient reserve for these cases, for at least three monthly installments, as well as unemployment insurance, which banks normally allow. If you lose your job, it is first and foremost important to talk to the creditors. By negotiating with the bank and non-bank lenders, it is often possible to postpone repayments or extend the maturity of the loan. And banks are often willing to change the payment schedule.
Guarantee for a loan that the borrower stops repaying
It is no exception that people want to help someone in the family to get a loan and become a guarantor. If, for some reason, the debtor ceases to pay, the obligation to repay the loan passes to the guarantor. It should be borne in mind that the debt for which you are responsible is also your obligation, and take into account the risks that may arise.
Life on debt
A common cause that leads to a debt trap is that people get used to a higher standard through borrowing without realizing that they are buying things they cannot afford with their income. They like it, after the first loan is followed by another loan and life on the debt begins. But living on debt is not forever, debts are rising, monthly payments are increasing, and it is only a matter of time before they can get another loan anywhere. Eventually everything turns against them and comes a “tax for a better life” in the form of execution and debt recovery. So it is important to calculate how much money you earn, how much money you have left after deducting the cost of living, and decide how much you can borrow to be able to actually repay the debt. And above all, don’t borrow for things you don’t necessarily need.
Loan for a friend who will not return the money
We are regularly approached by people who blame their debts for their former partner. The percentage of women is significantly higher. Women are approaching us on a daily basis, saying that their ex-boyfriend borrowed them, borrowed them, and that they are now unable to repay. In other cases, they are loans to friends or family members who have not honored their promise to return the money, causing financial difficulties for the applicant. Very often people borrow “for someone” loans, so you need to think twice before borrowing money for someone. And if you opt for a loan, be sure to write a contract that will be concluded between you and the person to whom you gave the loaned money. Then you will be able to get the money back at least through the courts. Without a contract, it is up to the person’s reliability whether or not they keep their promise.