At times when the problem becomes worse, there are wider options available that range from a debt management plan to filing for bankruptcy. A debt management plan is an informal arrangement between you and your creditor as to how much you can pay, and for how long - it usually involves freezing interest as long as you pay back the principal. On the other hand one can file a bankruptcy when all the assets are sold out. Also there are individual voluntary agreements (IVA). These are legally binding agreements between you and your creditor for paying off, only a part of the debt in small installments, over a much longer period of time. IVA providers as well as a debt management company charge a fee for providing their facility.

Such refinancing options would always help a person escape from bad times but it would always shift the problem for the future. Thus there is a need for a formal law to overcome debt problems and save the economy from falling into a trap.

Avoid a debt

It is advisable to prevent oneself from getting into a bad situation. There are some everyday tips that can help one from falling into a debt trap.

• You may be tempted to buy a lot of things with credit cards. Use credit cards sensibly. One of the easiest ways of getting into a debt trap is courtesy a credit card.
• Stay within 30% of your credit limit and try to pay off the entire amount of outstanding dues before the last date. If you carry forward the dues, by just paying the minimum amount you end up paying a lot more in the long run. Banks charge highest interest rates for credit card dues.
• Always think about the incidental costs after you take a decision to buy any expensive item. You may think that buying a car will just involve paying off the loan amount. It comes with lot of other maintenance and fuel charges, which you should be geared up to pay.
• Never pay for daily requirements with credit cards. Once you get addicted, it is very difficult to get out of the credit trap.
• If you are planning to buy a house through a home loan then make sure monthly EMIs don't exceed 40-45% of your take home salary. If you are going for car, or any other loan, your EMIs should not exceed more than 10-15 % of the take home salary.
• Always keep a contingency fund ready by saving a certain amount of your income. You never know when an emergency may arise. Borrowing from the bank or anyone else is not a good idea. With interest rates soaring, it is better to keep away from personal loans.
• If you do not have ready cash to pay for anything, don't accept offers on credit unless you read the fine print of the offers. Many shops offer goods on credit. Make sure you know every detail about the deal.