A Debt trap is a situation where a person who owes a debt debtor gets stuck in the cycle of trying to repay a debt owed. This happens when the money the borrowed to repay in the future is so much that their means can't repay it withing the time agreed or when the money borrowed has an interest on it that makes the debt keep growing to a level where the debtor becomes trapped to repaying the debt the owe. Debts are one of the most popular aspect of finance in the world today and this is simply because sometimes people find themselves in urgent need of money they don't have and the best way out is to seek the help of a person, an organisation or a body, to help them out with the funds needed to repay back after a while. Some of these debts do come with interest especially in cases where the creditor runs a business and sometimes, they don't.
Before talking about how to escape debt traps, it's best to know that there are two kinds of debt. The good debt and the bad debt. Of course from the name, a good debt is a debt taken for a good cause financial wise, where the money borrowed is invested into something that would yield more money to easily repay the debt and interest, where as the bad debt is one take for reasons that do not fetch an income to repay the debt.
The issue with debt however isn't with taking them, it's always the repayment of debt and if you've ever had an experience with debt either as the creditor or debitor, a debt could either strengthen your relationship or break the relationship you've had with a person, body or organisation. There are several times where a debt could also cause many live threatening situations and this is why should be educated on debt and the topic should be talked about more often in the society.
The best way to avoid debt traps in my opinion is avoiding debts in the first place. That might seem difficult since we live in a world where even countries borrow money from bodies, but staying away from debt itself makes life more easier for us at the end of the day. And if a debt would have to exist for any reason at all, it should be a good debt. One taken to invest in something that could fetch in more money to be used to repay the debt owed.
To get out of a debt trap needs one to strategically plan how to escape the debt trap. The most effective way is to payback the smaller debts or ones with a shorter time frame first. For example repaying a $1000 debt with 10% APY before a $2000 with 10% APY . This way you get yourself cleared of everything that comes with debt from a particular entity and pay attention to the bigger debts if they exist.
Secondly, you can get out of a debt trap by repaying the debt with a larger APRor compounding effect so they don't pile up and become something to worry about in the future. For example repaying a debt of $20000 at 10% APR first before $1000 at 20%.
Although these are just my opinions on how to settle your debts quickly, I believe the situation of the debtor matters and they are in beat position to decide which of the method suites them best. Thank you for reading and I hope you find this useful .