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WHAT ONE SHOULD KNOW ALL ABOUT BAD DEBT?


A bad debt is referred to something which is not a worth of its value and drains off your money. It can also be defined on the basis of loans that have no real prospect to opt for. Some of the loans you acquire have very high rate of interest along with high EMIs that lead you into debt trap. To illustrate, when you "Apply For Loan" for unaffordable trip, shopping, lavish party or purchasing expensive gadgets, these unnecessary may turn your loan into bad debt.

It is not true that every loan turns into a bad debt because some loans are worth to go but the loans that cannot be justified in the terms of purpose, interest and tenure are said to be bad loan. To exemplify, a loan of 3 year tenure to purchase the latest smart phone can be a bad debt as that phone would become outdated within these 3 years of repayment. This kind of loan is not justified; it’s just wastage of money.

A personal loan with a high rate of interest secured for a medical emergency is justified as no money can be bigger than the value of somebody’s life. One would not feel this financial burden of repaying a personal loan in exchange for the life of himself/herself or his/her loved ones. Well, if you are trapped in a bad debt anyhow and now it’s difficult to repay the loan back, we have mentioned few steps that you can follow to get out of it.

  • Go for Debt Consolidation Loan: If you have a sword lying on your head to meet the deadline of paying back the borrowed amount then you should go for refinance. Refinancing refers to applying for a new loan with low rate of interest to pay off the dues on your existing loan. You can "Apply For Gold Loan" or loan against property with low interest rate to consolidate your previous loan.
  • Have words with your lender: If you are unable to pay the loan EMI because you don’t have enough money then go and talk your lender about this. You can ask your lender to lower down your monthly installment and to increase repayment period. It will help you to pay the loan efficiently otherwise untimely payment  can negatively impact s your credit report as well as legal actions can be taken against borrower.
  • Ask for settlement: When you are in bad debt and unable to repay then its better option to ask the lender for loan settlement. You can request your lender to accept the lesser amount on total outstanding amount including principal and interest but more than principal only. If your lender agrees with you, you can pay it easily and get relieved from the financial burden.

Nowadays, borrowing money is a new normal but before borrowing any money, it is important to know the difference between bad debt and good debt because some of the debts can create a big financial mess for you in long run.

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