Here is how Amita Shah’s (name changed) managed her money and got into debt.
- She wanted to buy a house?
- She took a loan.
- Wanted to redo her home interiors?
- Took another loan.
- Wanted to buy a car?
- And a third loan.
Now, she wanted to close the first loan. Took another loan to close it. The second loan was giving her sleepless nights. She was looking for another option to help her close that. And the vicious cycle began…
While she was earning 15lacs per annum her expense had reached 20lacs per annum!! She never understood the red signal earlier and so before she realized she was sunk in debt and obviously sunk in despair. Eventually all the aspects of her life were severely impacted.
A common sight is that people often take multiple loans to fulfill their aspirations and then need more loans to close the previous ones. However, a wise step is to clear your previous debts before applying for new loans.
Be it when taking a personal loan for renovating your house to give it a stylish look or paying through credit cards for expensive house hold items or clothes that you actually can’t afford, these kinds of debts are to be avoided as much as possible.
It usually tends to happen that the amount you pay in interest, late fees and any other penalties might actually exceed the value of the product or service you purchased.
Paying EMIs for multiple loans can be daunting, resulting in the inability to pay current outstanding dues in time. You finally find yourself losing out on your savings and forced to take irrational decisions leading to the distress sale of valuable assets like house and jewellery to repay debts.
Taking a loan to clear previous debts is a poor strategy as this puts you in a dire situation where you will struggle to clear all your debts through your lifetime.
If you find yourself in a similar situation, the first thing is to take external help from a qualified person to help you sort out things.