The Five Stages of a Debt Trap
Stage 1: Initial Borrowing
- Description: The individual takes out a loan or uses credit to cover an immediate need.
- Example: Using a credit card for an unexpected medical expense.
Stage 2: Repayment Challenges
- Description: Difficulties in keeping up with repayments due to high interest, income instability, or unforeseen expenses.
- Example: Car breakdown requiring expensive repairs.
Stage 3: Additional Borrowing
- Description: Taking out new loans to pay off previous debts, leading to higher interest rates and increased reliance on credit cards.
- Example: Taking a high-interest personal loan to cover medical and car repair costs.
Stage 4: Debt Accumulation
- Description: Making only minimum payments, incurring penalty fees, and facing compounding interest.
- Example: Struggling to pay more than the minimum on credit cards, leading to growing balances.
Stage 5: Long-term Financial Consequences
- Description: Credit score damage, potential legal actions, and considering bankruptcy.
- Example: Facing collection actions and considering bankruptcy.
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