4 Worst Types of Debt & How to Get Rid of Them

It can be a pretty daunting situation based on your circumstances when it comes to paying off debt. Nobody likes to be stuck in a vicious debt trap, and at the same time, you have to honour your monthly EMI payments on time. Missing your monthly instalments will harm your credit score, which will impact your ability to avail of bigger loans from personal loan providers in the future. So, you need to take on debt in the form of a personal loan only when you require it. Never approach a personal loan provider for a loan just because you can. Doing so is only warranted during an urgent, unavoidable emergency.

This article discusses four types of debt you need to avoid at all costs and how to get rid of them. Read on:

1. Credit Card Debt

We all know that plastic is extremely harmful to the environment. Well, this prevalent, plastic form of debt is ruinous for your financial health as well. We're not saying that you shouldn’t put anything on your credit card. We only recommend that you use them if you're sure you can repay the entire amount within the due date. If you don't, you're going to be charged notoriously high interest that only credit cards are famous for. Did you know that the average interest rate on a typical credit card across all the major banks in India is between 36-40%? That's a whopping 3% per month if you default on your credit card bills. So, don't purchase essentials with a credit card – use a debit card instead.

2. Payday Loans

Payday loans are notorious for making thousands across the country fall into financial quicksand. The premise of a payday loan sounds extremely harmless – a small, unsecured loan given for a short period. But this is precisely why we warn you to stay as far as you can from these loans. Almost 90% of all payday loan applicants struggle to repay the loan within 15 days. Yes, just two weeks! Also, the interest can range between 2-10% per day on a payday loan! So, the APR can be anywhere from 30-150%, which leads to substantial interest. The processing fee and overdue charge are high as well.

3. Education Loan

It’s very common for people to avail of an education loan to take care of their college or post-graduate degree tuition. But in India, did you know that your personal loan provider will evaluate your eligibility based on the degree and college you’re applying into? Suppose you happen to land an only average placement offer. In that case, it may take you three to four years to fully pay off your education loan. This means that you'll have to put all your dreams on hold until you've fully repaid your loan. While the interest fee is low, the processing fee is high, up to 5% of the entire loan amount.

4. Personal Loans

Yes, personal loans are unsecured, easily accessible, and come with absolutely no restrictions on usage. But if you default on your EMI payments, you risk doing severe damage to your credit score, which will take at least a year to reverse. So, before you approach your personal loan provider, plan the loan amount properly. Borrow what you need, and only for a proper reason.

In Conclusion

When you realize that you need to avail of a personal loan, read the above article to know what to avoid. Come what may ensure that you pay all your loan EMIs on time.