Many times we always get lured by the lucrative discounts and schemes that banks have to offer for opting for a personal or credit card. But very little do we want to analyze whether we actually need such debt traps or not.
Sathish walked into a credit counselling Centre with a huge burden of credit card and personal debts. With sagging eyes and after working two shifts, he still found it very difficult to repay the installments, the repayment of the principle amount being a far fetched thought. He realized how deep he was into the debt pit when he applied for an educational loan for his daughter’s higher education. Only then he realized that he had made the maximum usage of the credit limit blessed towards him. Now he has ended up nowhere.
Kumar, a self made business man, too, fell into this similar debt trap. He was carried away by the idea of loaning his business- at the time when his business didn’t require any such external credit. He made the mistake of borrowing this loan at enormous interest rates, more than what his business could pay back. Thus pushing him into the debt trap.
Most people take the risk of repaying the loan by investing of what is little left of their investments, in the equities market. But little do they realize that, utilizing luck in such slippery situations can hit them real hard on the face. On the eventuality of a market crash, the tend to loose everything.
Now, Mr Kumar could have approached the higher authorities like the Zonal officer or the Regional officer to try and explain to them as to why he needs an educational loan and under what circumstances the bank has denied him of that facility. If this step could have been taken then he can avoid himself to not get under a another debt burden. But he simply did not know that such kind of an option existed, leading him to approach another financial institution which can grant him an educational loan for his daughter.
Business loans
Even entrepreneurs, need to make a good financial plan before setting up their enterprise. Instead of going through the traps of a personal loan and risking their personal investments and savings they have a lot of other better options in hand. Such as the SIDBI(Small industries Development Bank of India), RRBs(Regional Rural Banks) and various other Nationalised banks provide Financial assistance depending upon the entrepreneur’s requirements.
A few banks ask an initial monetary contribution from you, which, you might not possess but instead of opting for a personal loan you can approach the State Commissioner/Directorate of Industries, as they have a lot of schemes which are offered to professionally qualified budding entrepreneurs, which can suit your needs and requirements.
Similarly, if banks ask you for a collateral security, which again, of course, can bring the option of availing personal loans. But CGTMSE(Credit Guarentee Fund Trust for Medium & Small Enterprises) can be seeked for as they can provide 75% of a collateral free term loan or working capital by banks. However, entrepreneurs who wish to use this service must pay a one time guarantee fee which can cover up to Rs1crore and an annual service fee.
So depending upon the size of your business, and it needs an requirements, you can choose the options which provide you with the finances. It is upto you to decide how much of what needs to be spent and re-invested.