A debt trap is a situation where a borrower is unable to repay their debt obligations, leading to a cycle of compounding debt. Debt traps can occur due to various factors, such as high interest rates, short loan terms, or deceptive lending practices. Here are some key points to understand about debt traps:

• Definition: A debt trap occurs when a borrower spends more than they earn and borrows against their credit to facilitate that spending. This can lead to a cycle of re-borrowing or rolling over loan payments because the borrower is unable to afford the scheduled payments on the principal of the loan.

• Causes: Debt traps can be caused by various factors, such as high interest rates, short loan terms, or deceptive lending practices. Borrowers may also fall into a debt trap due to unexpected financial emergencies, such as job loss or medical bills.

• Effects: Falling into a debt trap can be financially and mentally challenging, and can lead to a cycle of borrowing more money to repay old debts, resulting in a never-ending cycle of debt. Debt traps can also affect a borrowers credit score and ability to access credit in the future.

• Avoidance: To avoid falling into a debt trap, borrowers should prioritize their debts and focus on paying off the debts with the highest interest rates first. Creating a budget and building an emergency fund can also help borrowers avoid a debt trap. Borrowers should also be cautious of risky loans, such as title loans and payday loans, which can lead to even more financial strain.

• Escape: Getting out of a debt trap can be challenging, but it is possible with the right plan. Borrowers should seek the help of a financial advisor to create a plan to manage their debts and get out of the cycle of debt. Prioritizing needs and concentrating on resolving the most urgent financial issues one by one can also help borrowers escape a debt trap.