Ways to Escape the Debt Cycle

Have you been suffering from a debt trap?

No one escapes it. No one is excused from it. All of us have debts. However, when your life is revolving on its own cycle, it’s like you’re always anguishing from the pain of a double-edge sword.

You need to escape away from the debt cycle. This way will strengthen and increase your net worth.

You have to first determine the causes why you’ve been trapped financially. This is the general step for you to have a workable solution.

Today’s consumerism culture is one of the main factors why you’re being monetarily drowned. There are a lot of commodities here, there, and everywhere. You’re enticed to borrow money now and then to have the latest gadgets, to pay for mortgages and student loans, and to have the luxuries of life. However, these things are making you “broke” — whether you like it or not.

Being trapped in debt means you’re struggling from an unhappy and stressful life. You don’t know how to stay away from it. Before we discuss the possible solutions, let’s examine first the causes of the debt cycle you’re currently facing.

Payday Loans

Considered as the most horrific form of debt, payday loans make people’s financial lives miserable. But this is one of the most appealing forms of credit offers. When you have a job, you are confident that you have the capacity to pay for the money being lent to you. Month after month you’re paying your loans through your paycheck.

This loan causes you to live a paycheck-to-paycheck life. The interest rates incurred in payday loans are dramatically higher than the other credit offers available. But because of the notion that you can pay through your salary, you’re availing of this kind of debt trap.

What will happen to your next paycheck? That will be used to pay for the money you borrowed from a lending institution or a bank with high interest rates.

Credit Cards

Every time you shop for goods in a supermarket or through an online retail shop, you are enticed to use your credit cards. Every time you open your Facebook page, you can see ads of various products. Then, you’ll be enticed to use your credit card to buy the thing that ignites your interest.

This is a bad habit of using a credit card. When you’re undisciplined and careless, you get trapped in debt. That is inexorable. The moment you cannot pay your bills on the due date, there will be corresponding interest rates and surcharges. They will tend to compound or to increase, not in a linear way but in an exponential manner.

Auto Loans

If you believe that driving a fancy car is making you happy regardless of your financial capacity to pay for the principal amount plus the interest rates month after month, then you’re letting yourself agonize the pain of a debt cycle. Auto loans serve as one of the major factors why people are having financial difficulties.

Why will you go for a car installment if you can’t afford its payment schemes? Aside from the traffic jam it can provide, it can compromise as well your pocket. But then again, the culture of living a luxurious life on the context of having expensive things, like a brand new 2017 BMW i8, is dragging your life in sorrow.

Expensive Homes

Of course, a home is very important. But if you’re living in a home out of loan then your financial capacity is having a difficulty in meeting the regular payments, then you’re in trouble. This is one of the most horrifying causes why you’re trapped financially.

Instead of living a more practical and affordable home, you choose a 6-digit condo unit or mansion that can make your financial life miserable. Because of your drive to provide your family a luxury? Material things are not the true gauge of a genuine happiness. It’s just all about mind-setting.

All forms of debts are terrible. They can give you stress and depression. In one way or another, they’re the main cause why your life energy and enthusiasm are decreasing.

Would you like to have workable remedies and approaches? This is a prelude question to help you escape from a debt cycle. Let’s now examine the possible ways to escape from this trap.

Financial understanding or wealth education serves as the primary solution. The above mentioned forms of debts escalate due to lack of understanding on this aspect. It’s just a numbers’ game. To explain it further, you cannot live a life full of debts if you know the limitation of your financial capacity.

Why will you get expensive car and home if you cannot afford them?

There are basic steps you can do to make sure that you have a full understanding with respect to your finances.

  • Secure an electronic record every time you use your credit or debit card.
  • Always bring a pen and paper with you every time you go outside. This is for the purpose of taking down notes on your expenses.
  • Keep all the receipts of all your regular and irregular expenditures.
  • Have soft copies of all your financial files and save them on Google drive or other online media. This can help you every time you want to check your financial flow and this is important for safe keeping.

Once you do the cited steps well, you can have a clear view of your monetary flow. Through this process, you can evade the negative impacts of financial mistakes.

Refrain yourself from using your credit cards in an excessive way. A debt spiral happens when you’re having bad decisions. The question related to this is: When is the appropriate time you have to use your credit card? Further, how do you use your credit card?

If you’re not sure you’re using your credit card the right way, then hide it. It means don’t use it. There’s no wrong with having it but its usage should be proper and prudent. Otherwise, you’ll face debt problems.

Aside from payday loans, credit cards do also have high interest rates. Then moment you cannot pay your bill on time due to financial drawbacks, such interests are compounding unstoppably until such time you’re totally sunk.

So the best way is to act with caution. Just use your credit cards when it’s really time to use it. Don’t possess things that are not necessary.

A great spending plan can change your financial world. It’s true that if you have a nice plan then you follow it, you will have a good life. It’s a principle that is applied also to avoid a debt cycle.

Differentiate between needs and wants. When making your plan for expenditures, you should know your priorities. Of course, they should involve the basic necessities like the daily food requirements.

It must be incorporated in your plan that month after month, you can save money out of your salary or business income. You can be in an unpleasant situation because you’re not perhaps accustomed to having a clear-cut spending plan. However, doing this perfectly can increase your financial growth and can help you stop the unwanted effects of debts.

Stop borrowing in a bad way. This has already been explained above. But this must be deepened further. Borrowing has various reasons. Now if your main reason is that you just want to have an expensive gadget as a symbol of social status, then you’re having a bad money habit.

There are two forms of debt — good and bad. It becomes good when you do it for business purpose or for other purposes that may generate income back to your pocket. A bad debt on the other hand reflects on your clamor to have expensive unnecessary commodities like having the most expensive iPhone version today.

Additionally, there are practical ways on how you’re going to settle your debts.

The first one is a do-it-yourself method. It involves paying your debts through either snowball or stack method. The second one is settling your debts through your own way. This could be a rare case but you could still do it. It can be done through your own personal savings. The third one is managing your debt which reflects and expounds the ideas like having a well-crafted spending plan and avoiding bad debts. This is the most practical and effective available option for you.

It’s said that prevention is better than cure. So instead of curing the issues associated to debt traps, avoid them. How? The answer is simple. Control your desire for things. If you want to buy or possess commodities that are available on the market, try to filter and weigh their importance. The acknowledgement of whether or not they’re part of the needs or wants is quite necessary. For sure, you can live a happier and more comfortable life when you’re away from the so-called “rat race,” which depicts your life revolving in a debt cycle.