11 Ways To Prevent A Debt Spiral (and best ways to get out of debt)

Most of us, at some point, are going to have to deal with debt. Yet, as we talk about in this article on Money Disorders, there are some who have gotten to the point that their debt is not a temporary trouble, but a long and sustained battle that only gets worse with time. This is known, most commonly, as the debt spiral and it’s a growing problem in a tough economic climate.

 But what is the straw that breaks the camel’s back? What turns manageable debt into something much more monstrous? Here, we’re going to look at the steps that lead into a debt spiral, and how we all can avoid going down that path. 

Not Planning…

One of the most common reasons that people get into debt nowadays is that they aren’t as prepared for the unexpected costs that can occasionally crop up throughout life. Home repairs, big medical bills, sudden car trouble. Without the funding to pay off these big costs, you can be forced to take out disadvantageous loans. Investing in preparation right now is the best way to avoid that risk.

Take a closer look at not only your most valuable assets but those that could lead to the biggest costs if things can go wrong. Finding the right insurance for those valuables, including your own ability to work, is important. Besides that, consider building an emergency fund that can meet all your regular expenses for three-to-five months.

Not Paying Attention…

We don’t always take on the decision to take on debt, sometimes it grows from right under our noses. This can be, in part, due to bad habits which will be covered later in this blog. Having a general lack of awareness about the details of your finances will certainly cause you to spiral and you won’t even be aware of it happening. At BusinessInsider.com, you can see the signs that you’re starting to fall into that spiral. These include being constantly in your overdraft, ignoring your bank statements, and being unable to contribute to big future expenditures.

Overextending Credit…

If you can use it responsibly, credit can be one of the handiest tools in your financial arsenal. Obviously, it can help you build the all-important credit score which is essential if you want to pay less in interest for your home, a car, or the funding to start a business.

However, if you’re using your credit too much, there’s a good chance you’re developing the habits that make it easier for your debt to grow slowly and quietly to the point it can no longer be controlled. Revolving credit, like credit cards are by far the biggest culprit of this. Take a closer look at how often you use your credit cards and be more mindful of when and when not to whip them out.

Not Paying Off The Credit Cards…

Underpayment of credit cards goes hand-in-hand with their overuse. If you’re using the credit card for the majority of your day-to-day expenses, it’s not uncommon that you don’t have the funding you need to pay them off at the end of every month.

However, even if you can’t pay them off, you should definitely be trying to pay more and avoid paying only the very minimum, as NerdWallet.com suggests. Other lenders pay attention to how you handle your credit cards and paying only the minimum is not very reassuring in their eyes. It can cause your credit score to drop, meaning you have fewer and fewer options when it comes to borrowing in the future.

Not Dealing With Stress…

When letters addressing your debt start coming through the door and you realize that you have got yourself in hotter water than you previously expected, there is obviously some amount of stress that comes with it. Not only is stress unpleasant, but it has been shown in studies to lead us to make worse financial decisions.

We will take unsafe strategies to try and pay off debt, including one that we’re going to take a look at next. What’s more, when we are stressed, we are more prone to spending unnecessarily in an attempt to make ourselves feel better, which only digs the hole deeper. Finding stress management strategies, like practicing mindfulness, can help us keep a level head and recognize habits that we should cut out.

Using Debt To Pay Debt…

The points above can all contribute to the debt spiral, but the biggest “symptom” of them all is when you start getting yourself into new debts to pay off other debts. Unless it’s part of a plan to reduce debt, such as using a balance transfer card or a debt consolidation loan, you should not be opening lines of credit. The availability of options like payday loans has caused many a desperate individual to look to them for quick cash to help them pay off their loans. However, the high interest rates attached to payday loans make them highly unfit for this kind of use. It means that not only are you prolonging your debt, you’re growing it much more.

Monthly Payments Start Increasing…

Whether it’s because you’re only paying the minimum on your balance or you’re using payday loans, your monthly payments are going to grow larger. As they do so, the debt can become more unmanageable. 

However, stopping the process of debt growth is ESSENTIAL, and one of the solutions available from DebtConsolidationUSA.com and similar providers. Consolidation doesn’t make debt disappear, but it can stop it from growing exponentially by offering a lower or fixed interest rate and helping to restructure it to make it all the more manageable.

Letting Debts Go To Collections…

Though there are some bad eggs out there, most creditors want to resolve any debts as peaceably as possible. If you ignore your debts or makes no mention of trouble paying them off, however, this is when the collectors can get involved.

Unlike creditors, collectors offer very little room to negotiate. Collection agencies are also well known for employing inconvenient and sometimes illegal tactics such as harassment in order to stress people out enough that they will make the necessary payments. If you do happen to have any collections agencies after you, ensure that you know your rights.

Collectors acting illegally may also contact your friends, family, and employers as well. Make sure you keep a log of any contact your creditors make and see what actions to take when they are harassing you.

No Implementation Of A Working Strategy…

Ignoring the debt spiral is never the way to go. As soon as you believe your debt is at risk of getting out of hand, it’s time to get much more active in how you fight it. Tools from YouNeedABudget.com can help you quickly put together a detailed account of your income, all your expenses, and your standing debt. By finding the expenses you can cut back on, you can easily find extra money that you can contribute more actively towards your debt. Make sure that the portion of the budget assigned to paying off debts is taken out first, so you don’t risk spending it on discretionary purchases instead.

Falling Back Into Old Habits…

Overuse of your credit cards is only one of the habits that can easily lead you to slowly building up debt. Bad spending habits can also lead you to spend even more time in debt. Paying yourself first (setting aside the debt repayment portion of your budget) is one way to stop these habits from staying in control of your finances.

Learning your spending triggers is also important. For instance, let’s say you come home from work and you’re too tired to cook, so you end up ordering a takeout meal instead. If that’s a common habit, you can avoid it by waking up a little earlier in the day and doing meal preparation, so your dinner is half-ready as soon as you get home.

Failure To Trim The Budget… 

Are you still stuck with your overdraft fees even though you could have sworn that you were being super responsible about your spending this month? There’s a good chance that you picked up some expenditures that you’re not accounting for. It’s essential to take a closer look at your bank statements and to account for every cost that pops up on it. DaveRamsey.com looks at easily forgotten monthly expenses that can show you’re spending more than you expect. Especially nowadays, convenient online subscriptions can be built up over time and forgotten about. Find those costs that you’re not in need of anymore and cut them from your life as soon as possible. Be more mindful of how you’re spending your money.

#debt #debtfree #managingdebt #livingdebtfree #budgeting #money

The debt spiral is much easier to avoid than it is to climb out of, so being aware of the risks and identifying the steps you can take is essential. However, it’s not impossible to escape it, so don’t give up hope and keep your willingness to work it out.

Check out these other great resources to help you with your personal budgeting –

How To Prepare Your Finances For The Unexpected…

3 Ways To Make A Successful Living On The Road…

7 Ways To Make Gift Giving More Budget Friendly…

5 Things You Need To Know About Your Credit Score

Do These 4 Things When Facing A Financial Crisis…

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