When an unforeseen emergency crops up then borrowing money can help, but if you start to rely on debt for your day to day living then you are getting trapped in the debt cycle that will become harder to escape.
The debt cycle starts when you take out a loan like a personal loan to pay for an unexpected expense. Your plan might be to pay it off before you take on any further credit, but life is full of surprises and another emergency may crop up or you may find that your living expenses have increased and you feel the need to apply for another loan. However, the weight of your increasing debt and the interest that is attached starts to put pressure on you. This may force you to get faster access to money and you may find yourself applying for a credit card or an overdraft facility.
In the end, you have multiple instalments to pay off and you start to rely on credit to pay off your daily expenses. This is the cycle of debt and the further in you are the harder it is to get out of it, but it is possible.
Here is how you can break the debt cycle.
Get to Know Your Situation
The first thing you need to do so you can get out of a bad debt situation is to admit to yourself that there is one. When it comes to personal finance, consumers are often in denial and won’t acknowledge that things have got out of hand, but hiding from the situation won’t do you any favours. Acknowledge your debt, know where you stand and be open to your family about it. You can also get advice from a reputable professional.
Say No to More Debt
When you can access credit, you can easily fall into the debt trap. It becomes easy to overspend on credit cards and using your overdraft facility when you run out of cash in the middle of the month. The best thing you can do is to close your overdraft accounts and leave your credit cards at home. You will become more aware of what you are spending and will be more careful with your money.
Your Money Only Goes So Far
You can only pay for so many things with your income, so you need to learn to live within your means. If you want to buy something, first think about how the purchase will effect the rest of your finances and if you will have enough for the rest of the month, if not, then rather leave the purchase.
You also need to make a conscious effort to save money so that you can avoid relying on credit if an emergency comes up.
If your dreams are larger than your earnings, then you may want to find ways to boost your income.
Have a Budget in a Place
Having a budget is important as it will show you what your income is, what you need to pay each month and what will be left once all your expenses are paid. This can help you to spend less, see where you can make cutbacks and see where you have cash available to pay off your debt or save.
Put a Debt Strategy Together
When you are paying off your debt, you need to have a plan in place, pay your monthly repayments consistently and you should try and pay more than the minimum.
If paying for your monthly living expenses is becoming increasingly difficult because of your debt repayments, then you need to seek help instead of borrowing more money. A debt counsellor can help to create a payment plan to provide you with relief. They can also help negotiate lower instalments and interest rates with your creditors.
If you are struggling with debt and feel like you are trapped in the debt cycle, then don’t ignore it. Acknowledge the problem and face it head on and get help from a debt counsellor if you need it.