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Introduction to Banking

Problem Of Excess Debt

Global Debt reaches a whopping $226 Trillion as per the IMF report of 2020. The debt problem is bad worldwide. Since funds are so easily available nowadays, people get into a humongous burden of debt even before they realize it. Then paying it back gets next to impossible. Sometimes people take one debt to pay off another such as they take a personal loan to pay off a credit card due. Then once the credit card limit is free, they start spending on the credit card again and land up with a personal loan and a high credit card due to pay off. More and more people across the world are falling prey to this. This is called the 'Debt Trap.' 

 

The most common reasons for going into an unreasonable amount of debt include:

  • Irresponsible Spending: Spending money irresponsibly is the numero uno reason for falling into a debt trap. Credit cards give a false impression of possession of money to people and it is easy to overspend. 
  • Wrong Habits: People who have a habit of gambling can accumulate a lot of debt over a short period of time. 
  • Poor Savings: People may not pay much importance to savings and may not have a sufficient sum of money to meet emergencies. In such cases, they might have to rely on loans to meet sudden expenses. 
  • Medical Emergencies: Medical emergencies can arise anytime anywhere and can affect anyone. Treatments are costly and might leave a family with a burden of debt. 
  • Loss of Income: During an economic downturn, one might have to rely on loans to meet the basic expenses. With a reduced income, this can lead to the accumulation of debt.

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