1. An individual, or an enterprise, should always be guided by the Debt Servicing Ratio which measures the borrower's ability to repay loans.
2. It is derived by dividing monthly loan repayments by monthly net income, and if higher than 0.5, a debt trap looms ahead.
3. Any loan, personal or business, formal or informal, becomes a bad debt if:-
a) It increases expenses without adding to net worth,
b) It is used for personal consumption and depreciating assets,
c) It does not improve future cash flows,
d) It is used for indulging in speculative activities, and
e) It does not offer any tax benefits.
4. Getting out of a debt trap takes time and requires careful planning, disciplined attitude, lifestyle changes and prioritizing repayments, instead of overleveraging and adopting unethical practices.
5. As someone once said, "Debt trap can sometimes become a death trap".
2. It is derived by dividing monthly loan repayments by monthly net income, and if higher than 0.5, a debt trap looms ahead.
3. Any loan, personal or business, formal or informal, becomes a bad debt if:-
a) It increases expenses without adding to net worth,
b) It is used for personal consumption and depreciating assets,
c) It does not improve future cash flows,
d) It is used for indulging in speculative activities, and
e) It does not offer any tax benefits.
4. Getting out of a debt trap takes time and requires careful planning, disciplined attitude, lifestyle changes and prioritizing repayments, instead of overleveraging and adopting unethical practices.
5. As someone once said, "Debt trap can sometimes become a death trap".