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A debt trap is a vicious cycle of debt that you might get into if you have taken on multiple loans. Over time, the monthly EMIs on these loans might make up a very sizeable part of your monthly income. After paying off these EMIs, you may not have enough money left over to meet your fixed financial obligations, such as rent, electricity, etc. Therefore, you might be compelled to take out another loan to make these payments. This will increase your EMI payments even further moving forward. Not just that, but it is also likely to reduce your credit score (because of your high debt-to-income ratio), making it difficult to get further loans at favourable terms.

As you can see, if you don’t deal with debt traps smartly, it could lead to an out-of-control downward spiral in your financial situation.

Below are some of the common reasons that people fall into a debt trap.

• Your EMI payments make up more than 50% of your monthly salary.
• Your fixed monthly obligations (rent, utilities, etc.) make up 70% or more of your monthly income.
• You have reached the maximum limit on any of your credit cards.
• You have taken out multiple loans.
• You are unable to save any money due to your financial obligations.

If you are plagued by a debt trap, you should consider getting a personal loan for debt consolidation