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Escape the debt cycle in six steps

Borrowing money can assist you with a difficult, unforeseen emergency, but once you start relying on it for your daily survival, you’re creating a cycle that becomes increasingly harder to escape. How does the debt cycle work? The debt cycle can begin when you take out a loan during an emergency – for instance, a personal loan. You may plan to pay it off before you take out any further credit. However, life can be unpredictable - another emergency may strike or you may find your living expenses have suddenly increased and therefore you could feel the need to apply for a second loan. What harm could it do, right? You may suddenly realise the weight of your mounting debt repayments, and you might not have thought of the implications of the interest attached to your loans. This pressure may make you feel you need even faster access to money, and prompt you to apply for a credit card or overdraft facility. In the end, you have three instalments to pay off, and you start relying on credit to help you with your daily expenses. It’s a vicious cycle, but one that can be broken. How do you break the debt cycle?

1. Acknowledge your situation

The first step to getting out of a bad debt situation is acknowledging that you’re in one. Consumers are often in denial when it comes to their personal finances because they don’t want to admit that they are in a difficult situation. Be sure to discuss it with your family and consult a reputable professional.

2. Don’t take out any more debt

When you have easy access to credit, it’s easy to fall into the debt trap. You can easily overspend because you’re counting on your credit cards and your overdraft facilities to come to your rescue when you run out of cash in the middle of the month. Close your overdraft accounts, and cut your credit cards or hide them away. This way you’ll be more careful about spending your money because you won’t have anything to fall back on.

3. Be realistic about your income

Your income can only afford you so much. Don’t be too ambitious and rather live within your means. Before you buy something, always ask yourself if you’ll be able to survive for the rest of the month with what’s left. Make a consistent effort to save money so that you do not have to rely on taking out credit if a financial emergency should arise. If your dreams are larger than what you’re earning, perhaps it is time you find ways to boost your income.

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4. Create a budget

Once you acknowledge your income, create a spending plan. This will help you map out your spending and encourage you to spend more purposefully. It will enable you to weigh your expenses against your income to see how much is left over. This process can help you spend less and have more cash available to save or pay off your debt.

5. Compose a strategy to pay off your debt

Put together a strategy on how you plan to tackle paying off your debt. Make sure you are consistently paying your monthly repayments and try to pay more than the minimum on your instalments. You can also chat to a registered debt counsellor such as DebtBusters about prioritising which debt should be paid off first. If you come into a lump sum of money, you can also chat to DebtBusters’ debt settlement department who can facilitate the settlement process, as well as negotiate a settlement discount.

6. Speak to a debt counsellor

If you are battling to afford your monthly living expenses because of your monthly debt obligations, it’s time to seek help rather than borrowing more money. A debt counsellor can help you devise a payment plan that will help provide the relief you need. DebtBusters can help you negotiate lower instalments and interest rates with your creditors. Don’t let debt imprison you. Contact our friendly consultants at [email protected] or call 086 999 0606 to find out how we can help you.

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