Look out for these dangerous debt traps while running your business.Loans
Loans become a debt trap when they are not managed properly. Often, people borrow more than what they can afford to pay back in a reasonable timeframe. This is especially true with high-interest loans, such as payday loans or credit card debt
The interest accumulates over time, leading to a situation where the debtor is just paying the interest without reducing the principal. This is essentially a debt trap, as the person is stuck in a cycle of debt that they cannot get out of.Overspending
Overspending is a common cause of debt traps. This usually happens when a person or a company spends more than what they earn. The gap between income and expenditure is often filled with borrowed money.
If this pattern continues, the borrowed money accumulates, leading to a debt trap. This is often worsened by the fact that many people overspend using credit cards, which can have high-interest rates.Poor Planning
Poor financial planning can lead to a debt trap in several ways. For instance, without a proper budget, a person might not accurately track their income and expenditure, leading to overspending.
Moreover, without proper planning, they might not save or invest wisely, leading to a lack of funds when needed. This can result in borrowing to cover the shortfall. If this cycle continues, the borrowed money can accumulate, leading to a debt trap.