Which of the following statements best describes a debt trap?

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When a person takes debt but is unable to repay it and has to take more credit to repay previous credit, the person is in a debt trap.

When a person takes credit for production purposes, earns profit, repays the debt, and takes credit again for the next cycle, then a person is in the debt trap.

When a person takes a loan from the unorganised sector, a person is in a death trap.

When a person takes a loan from the bank, a person is in a debt trap as the bank charges very high-interest rates on loans.

answer is A.

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Detailed Solution

A debt trap is when a person takes debt but cannot repay it and has to take more credit to repay previous credit; the person is in a debt trap.
This cycle continues, and he cannot escape the debt situation. This happens mainly if the loan is taken from an unorganised sector as they charge higher interest rates, and the person cannot repay the loan. The other situation which gives rise to a debt trap is if the loan is taken for an unproductive purpose.

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