Choose that the given statement is true/false:

A 'debt trap' is overspending till no money is left.

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True

False

answer is B.

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Detailed Solution

The above statement is false.
Higher interest rates or changes to the terms and conditions of taking on debt may result in a debt trap situation. Debt traps typically lead to missed payments or bankruptcy. The debt trap is a circumstance in which you are compelled to overborrow to pay off your current debts. Over time, you find yourself trapped in an unmanageable financial situation that exceeds your ability to make payments, trapping you in a cycle of debt. When a borrower, especially one in a rural location, cannot repay the loan because the harvest failed, he is left worse off. In this instance, credit forces the borrower into a predicament from which recovery is exceedingly difficult.
The correct statement should be that a debt trap is a circumstance in which the debtor will not be able to pay back the borrowed funds.

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