debt trap is when a borrower is in a position to pay only the monthly interest and the principle is still left behind. The traps are formed by the purchase of many high-interest loans.

People fall under this trap mainly because of top-up loans, debt consolidation and finally paying only the minimum balance of credit card.

The important factor is that people don’t find themselves being under this trap for a long time.




For example post 2010 in India, government provided education loans for undergraduate and postgraduate. In which it has given an interest free loan facility till you complete your degree. Post degree completion the interest starts accumulating in your existing debt.

Most students who have taken education loans don’t have the awareness of the interest amount it has grown. As they don’t pay neither the principal amount nor the interest amount for so many years.

For the loan amount of Rs. 1.5 lakhs taken for education. If the loan principal and interest amount are not paid for 4 years post completion of course. The current payable amount will be around 2.5 lakhs. You are going to pay an extra 1 lakhs. This completely due to your improper knowledge of debt management.




A debt trap simply works as a cycle, but the core point here is improper knowledge on debt management and improper knowledge on financial planning.

The initial phase of debt trap starts with a credit card, education loans, and gold loans.

This becomes a trap when you don’t pay their installments or EMI properly.

Let us see the cycle.


debt trap



By the above cycle you would have understood, how a debt trap can lead to losing all the important assets.

When you have a proper tracking of budget, especially income, expenses, and debts. You will not fall into these categories.

Everyone will be having some debts. Even I too had all the debt materials 2 personal loans, which turned into loan consolidation, 2vehicle loan and 1 gold loan as a history of debts.

What I did was proper financial planning and tracking of all my debts EMI properly.

Whenever I take a loan, the first thing I do is, take a dairy note ever month of total tenures. Then will tick down the months which I complete payment. This gave me the viability of remaining months of payment and making my mindset to close all my debts.

Since the last two years, I don’t have any debts and I won’t take any other debts as I am more clear with goal based investments and power of compounding.



There are only a few ways to get out of the trap. Here are the steps to follow.



In some many topics related to financial planning of Fincare wealth creator, we use to say proper budgeting. Of course, this is the most important and primary step to get out of all financial burdens to achieve financially freedom.

As I informed earlier on how I managed to close my debts and not taking any new debts.

·       Maintain a proper dairy or MS excel to track your payments on the installation date of the month.

·       More important is calculating all your income and expenses.

·       Never try to get any type of expenses more than the income.

·       Never get a loan to show you’re wealthy to others. This is done everywhere for marriage, car, and even home.

·       Whatever it may be plan according to your income and do expense within your income.

·       Always have this mind, you should save 30% of your income towards savings.

Proper budgeting the starting point for financial freedom. Please have a look at how to manage your monthly budget.




The biggest trap is taking a loan at an emergency situation and doesn’t care about the interest rate.

Most people take these loans to handle both emergency and health issues.

These are the trapping loans which will eventually increase your possibility of a debt trap.

The way to overcome these issues is by having proper emergency fund and health insurance with adequate coverage.



Everyone has a dream, most dreams are materialistic like bike, car, home, etc. Once, people been paid with a salary of 30K or more, they are in a mindset to buy the whole world.

We won’t advise you to buy these above dreams at the beginning of your career. First, you should align your life securities like term insurance, health insurance, and emergency funds. After that, you should focus on goal based investments.

So, you should never buy these dreams through loans. Dreams should be emotional and should be achieved by the proper route map.

So, avoid loans or Emi for purchasing any kind of materialistic deeds.




The final and most important in handling the debt trap is to consult a financial planner. It is not a compulsory move, but when you feel that you couldn’t control your debts.

When you can’t do proper savings or investments.

When you feel, you don’t have enough time to track your expenses, debts, and investments.

Then, you should consult a financial planner or fee-only advisors.

Make then understand your situation and the solution you need to solve your financial instability.

Fincare wealth creator provides complete financial, investment, and tax planning.




·       Debt traps are happen due to a lack of tracking of the debts we have and accumulating debts.

·       These traps will spoil your life peace and happiness and may lead to personal bankrupt.

·       These can be resolved by proper budgeting, tracking of income and expenses, avoiding high interest loans.

·       Don’t buy your materialistic dreams by loans.

·       If needed consult a financial planner or fee-only advisors.