No one wants to end up getting caught in a debt spiral. It can lead to financial hardship, stress, sleepless nights and even bankruptcy. That is why it is important that you seek help as soon as possible to avoid getting trapped in by debt.
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Am I in a Debt Spiral?
There are a couple of questions that you can ask yourself to determine if you are in a debt spiral.
- Do you have less money this week than last week and is this a common occurrence?
- Do you hide your debts from your family
- Are you getting phone calls from debt collectors demanding payments
- Are you struggling to pay back money that you owe to others
- Have you ever wondered how your debt became so large?
- Are you unsure if you are going to have enough money to pay for gas or food within the next week
If you answered yes to any of the above questions then it is possible that you are in a debt spiral.
Avoiding the Debt Spiral
The best way to avoid getting in a debt spiral is to realize when you are in financial trouble and to get help as soon as possible. Obviously it’s best to do this before there is a problem, as the longer you leave it get out of control, the worse off you will be and the more difficult it will be to recover.
Impact of a Debt Spiral
If you find yourself stuck drowning in debt there are a number of things that can start to happen.
Emotional turmoil can lead to a degradation in your interpersonal relationships with family, friends and coworkers. You may find yourself getting angry with everyone and also having less patience than you normally would.
Most people experience stress, but it can be amplified by having major debt problems. This can cause you to lose sleep at night and also make you more susceptible to various illnesses. If you are feeling stressed about money, then there is most likely a problem that needs addressing.
Bankruptcy is a major problem for people struggling with large amounts of debt and who have left getting help too late. Bankruptcy is not something that you want to have to deal with and should be avoided if at all possible. There are real consequences to declaring bankruptcy which you can find out about in this post.
One of the easiest ways of avoiding a debt spiral is to not get into debt in the first place. This might sound obvious, but it is an easy trap for people to get caught in.
If we look at car loans as an example, you might see a car on sale and really want to upgrade. You decide that it is too good of a deal to pass up and before you know it you are at the dealership and have signed up for a car loan. The problem with this type of scenario is that the car loan is normally at a high interest rate and you are paying huge amounts of interest on a depreciating asset. This is pretty much a lose/lose situation unless you absolutely need that car. Consider avoiding the car loans and go to your local bank and look into personal loans instead. Quite often they will be a few percentage points cheaper than what the car dealers offer and over the life of the loan you may end up saving a few thousand dollars.
An even more common type of debt is mortgage debt. Lots of people have mortgages, but what you need to be aware of is how quickly your payments can change whenever the interest rates go up. If you have a mortgage and are only just able to afford the repayments when interest rates are at these historic lows, how long do you think you will be able to survive if interest rates start going up? Or if you lose your job or are unable to work. Any of these things could throw you into a debt spiral that would be difficult to get out of.
In my opinion the most dangerous type of debt is credit card debt. The interest rates on credit cards are astronomical and most of the time people are far to willing to pull out the plastic card to pay for things that they normally would think twice about if paying with cash. Many people get caught up in interest free periods on credit cards and then end up over spending on items they don’t need and that they really can’t afford.
Getting Debt Advice
Obviously getting help is going to be a priority, but sometimes it is worthwhile just to have a chat with close family and friends regarding your debt problems. They may be able to help you deal with some of the smaller problems which may be all you need to get back on track.
If, however, you find yourself needing more debt advice than a friend or relative can provide then there are plenty of places where you can get help. There are specialist companies like Payplan that offer debt advice services to people who are struggling with managing their debt. Or if you want there are entire books dedicated to managing debt!
My final parting words is to avoid borrowing more money to pay off existing debts. It is a vicious cycle that is bound to end poorly for you and the people lending you money. If you have already borrowed money to pay off existing debt and feel trapped, then consider looking into debt consolidation as a way of reducing the amount of money you have to pay. Do seek help if you are having problems, there is always a way to deal with debt.
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