Have you ever thought about the reasons why often people get trapped in loans? The reasons behind debt traps, often time the decision for loan applications are based on the bits of knowledge we gather from here and there. In this digital era, a major chunk of loan applications are made without prior planning of how the scheduled EMI would be repaid, and the other chunk consists of loans for miscellaneous reasons, we zeniths don’t like the concept of saving up. As soon as the new technological gadget is launched, we want it, provided the prior major chunk of the loan applications is for these petty purposes. The very concept of a loan is misinterpreted, taking unnecessary loans, and then at the time of financial crisis when we actually need the loans, we are welcomed with bad credit history. Now this problem is not the major one, just requires awareness about the lending markets and how can one achieve a good credit score.
Understanding The Concept Of Loans
The term Loan was first used in the agrarian sector of the economy aka the agricultural sector, where the farmers used to borrow seeds and equipment from the big farmers and would repay them with some share of the agricultural produce their farms yielded. Later on, this concept was accepted by traders, and soon the whole market aka the three sectors was using this concept to increase the ease of doing business, to reduce financial stress. Nowadays the terms bad credit, and loans for really bad credit are quite prevalent, because we all have learned to apply for loans but have forgotten we need proper plans for the repayment of the loans, and the loan amount to be repaid included the initial borrowed amount plus the interest aka the charges of the services of money providing to us are also to be paid that too in a specified time frame, which requires budgeting and planning.
Budgeting And Planning
Let’s be honest how many of us budget before spending, rarely, don’t care about how much we have spent, all we know is we work and we spend it. The notion of pre-planning and budgeting before the loan application is quite rare, even those with a decent score never plan their loans out, all they do is cut some of their expenses and repay the loans for really bad credit, and then complain about the lack of money they receive from their employers. One should know how to use money, otherwise, in the end, we all would be struck into debt traps. Budgeting and planning for a loan would be the sparing amount from your monthly payment for the EMI aside, all the while keeping two or three EMI saved in advance, if by chance something came up and you are not able to pay EMI, at least you have spare cash to compensate.
Planning and budgeting your expenses is not old school, it is an essential task, and a sign of a financially literate person, so that if something sudden comes up your whole financial stability is not shackled, moreover, you will be surprised to know the people who adopted the method of planning and budgeting before the loans have a bare minimum chance of getting into a situation like a debt trap.