Availing credit is quite easy. But to manage the credit and avoid falling into a debt trap is not that easy.If you avail a credit facility, for a genuine need and utilize it for that very purpose, then you are on the right track. Diversion of funds availed under credit, is a dangerous practice. It is rather slippery terrain and you could land up neck deep in trouble. Here some important tips to avoid falling into a debt trap:
1.Avail Credit only if absolutely necessary.
2.Read fine print and understand credit terms like rate of interest, repayment period and security details thoroughly.
3.Verify credit documentation. Never sign any blank documents.
4.Verify amounts and rates of interest in loan documents. Double check subordination of available collateral securities.
5.Find out about upfront charges like processing fees, documentation fees and other hidden charges.
6.Get a detailed sanction letter laying all the terms and conditions of the credit in black and white.
7.Never ever divert availed funds. Use it for the purpose availed
8.Make repayments as per schedule and ensure that these are accounted properly by the creditor.
9.Get periodical statements and verify the entries.
10.Renew credit facilities only if absolutely necessary.
If you stick to these, then credit management could be as easy as child's play. If some thing goes wrong with your business venture and if repayments have been missed, then make a forthright approach to the credit-affording institution and put your cards on the table. Work out a repayment holiday. Infuse further nursing funds if necessary. Rebuild your venture from basics. If your dealings have been transparent, the creditor will help you tide over the crisis.
Manage your credit wisely.