Perhaps you keep getting out of debt, only to fall back into it shortly after. That is what a debt cycle is, and many people fall into this cycle and can’t seem to get out.
Falling into debt over and over again can lead to insane amounts of stress, unhappiness, sadness, and feelings of hopelessness. No one wants to experience these feelings.
But, I want to tell you that it IS possible to get out of the debt cycle.
Today, I will help you finally escape the debt cycle so that you can live the life you want.
Face your problem
Before we continue, you need to realize why you keep falling into a debt cycle. You should think about the answers to the questions below:
Do you feel like you deserve everything you buy?
Are you trying to keep up with the Joneses?
Do you have an emotional spending problem?
Are you afraid to face how much debt you have?
Do you feel like debt makes things seem more affordable?
Are you unprepared for emergencies?
Do you truly understand how debt and interest rates work?
Are you living paycheck to paycheck?
Do you live beyond your means?
Do you have credit card spending problems?
To get out of a debt cycle, you need to realize why you keep falling into debt. By understanding why you are falling into debt, you can begin to prevent yourself from falling back into a debt cycle.
However, until you dig deep and realize this, the debt cycle will never end.
Side note: I highly recommend that you check out Personal Capital if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com but 100 times better. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more. And, it is FREE.
Add up your total debt
This is related to facing your problem, as adding up your total amount of debt will help you realize how to gain control of your debt. This will help you to truly understand how much debt you are dealing with.
Plus, most people have no idea how much debt they have. By adding it up, you will have a more realistic view of your debt problem.
Create a budget
Most people have student loans, credit card debt, a mortgage, car loans, and sometimes many other forms of debt. However, not many people have a budget.
According to a survey done by Gallup, 68% of households in the U.S. do not have a budget.
Budgeting can help you take control of your financial situation so that you can stop the revolving debt cycle.
Pay off debt
In order to get out of the debt cycle, you’ll have to pay off your debt!
No surprise there.
Paying off your debt can lessen your stress levels, allow you to have more money to put towards something else (such as retirement), stop paying interest fees, and more.
Read more at How To Eliminate Your Debt.
Create a vision board
Having your financial goal displayed in front of you can make it that much more real, plus it’s nice to have a constant reminder of what you’re working towards.
Various ways to make your financial goal visual include:
Create a graphic that demonstrates your financial goal. I did some research and found a blog post on A Cultivated Nest about many creative ways to do this.
Keep a picture of your goal on hand. You could even go all out and create a vision board on Pinterest, or you can create a poster board of all of the things that debt freedom will allow you to do.
Write down what debt free life will be like for you.
Start an emergency fund
An emergency fund is something that everyone should have. However, according to a report by Bankrate.com, 26% of Americans have no emergency fund whatsoever. This same report found that only 40% of families have enough in savings to cover three months of expenses, with an even lower percentage having the recommended six months worth of savings.
This is scary to me, as having an emergency fund can greatly help you get through hard and unexpected situations that may arise.
An emergency fund can help if you:
Lose your job
Have your hours cut back
When your car breaks down
If you have a medical expense, and so on.
Plus, an emergency fund can help you get out of the revolving debt cycle. This is because if an emergency does arise, you won’t be forced to rely on debt in order to solve your situation. Instead, you’ll have your emergency fund to bail you out!
Read more at Everything You Need To Know About Emergency Funds.
Spend less than you earn
Too many people live paycheck to paycheck. This can lead to credit card debt, high interest rates, and more.
You should always be spending less than you earn. If you aren’t, then you need to find ways to cut your budget and/or increase the amount of money you earn.
Save more money
Finding ways to save more money may allow you to pay off your debt a little faster, improve your financial habits, help you reach your dream sooner, and more.
Read more at 30+ Ways To Save Money Each Month.
Make extra money
I believe that earning extra income can completely change your life in a positive way. You can stop living paycheck to paycheck, pay off your debt, and more, all by earning extra money.
In fact, because of extra income and my blog, I was able to pay off $38,000 in student loans within 7 months, leave my day job in order to pursue my passion, travel full-time, and more!
Making extra money can do something similar for you as well. It can help you break out of the debt cycle as you’ll be able to put more money towards your debt, and you will be able to spend less than you earn.
Try using just cash
If your problem with debt is that you don’t know how to correctly use credit cards, or credit cards or too tempting for you, then you may want to get rid of your credit cards and try using cash.
A cash budget is when you pay for the majority of your purchases in cash. Of course, there are certain expenses, like a mortgage payment, that you may not be able to do that for or that you may not want to do that for. For the most part, any and almost all spending is done with cash when a person is taking part in a cash budget.
A cash budget can help because:
It forces you to think about where your money is going
It can prevent impulse shopping and clutter
Spending actual cash “hurts” more than spending money with a credit card
Don’t keep up with the Joneses
Whether you are a young child and want that new toy everyone is playing with, or if you are a parent and are feeling the need to upgrade your house, car, etc., everyone has experienced wanting to keep up with someone else.
The problem with this is that keeping up with the Joneses can make you broke and fall into a revolving debt cycle.
When trying to keep up with the Joneses, you might spend money you do not have. You might put expenses on credit cards to, in a pretend world, “afford” things. You might even buy things you don’t really care about. The problems can go on and on.
This can then lead to a lot of debt and potentially set your financial goals back years, if not decades.
You should stop caring about what other people are buying, and, instead, only do what makes you happy.
Are you stuck in the revolving debt cycle? What are you doing so that you can get out?