A debt cycle is continuing to use borrowed money to pay off debt. Think of an avalanche, it starts small but as it rolls down the hill, it grabs everything in its path. That’s exactly what debt does.
The more money you borrow, the more your debt will grow if you do not pay it off fast enough. Which is why it’s important to keep debt to a minimum so you’re not playing a game of constant catch up with an avalanche, trapping you in a debt cycle.
Here are some tips to keep you out of a debt cycle trap:
Understand your finances
Make a realistic budget, to include what you have coming in and coming out. If you’re currently paying off your last big credit purchase (like a car, for example), hold off. Wait until your current debt is wiped out before you even consider picking up another form of debt. This is the most common cause of debt traps.
Focus on saving
In a world full of “buy now, pay later” programs, it can be enticing to consider using one. However, every time you “pay later,” it adds additional money onto your debt with interest and fees. A better route would be to start a savings account, or saving funds (using an app like Plinqit), for certain high-priced items. It may seem like a waiting game, but it’s nothing compared to the waiting game of trying to pay off debt that you can’t afford. Remember: Save now, buy later.
Avoid credit cards
While using credit for things like a home or a car, or even paying for college, have the ability to elevate your lifestyle and capital quite a bit, credit cards often serve as a temptation more than anything. Using credit to build yourself a life is not the same as using credit to buy things you just desire to have. Train yourself to think of credit as a last resort, utilizing savings programs so you always keep yourself in the positive.
Credit can be enticing. But just know, whether you see it yet or not, the avalanche is coming. So, spend (and save) wisely so you aren’t caught off guard when it sets in.