We have all, including me, been in situations before where we spend money like there is no tomorrow. Credit card debt, student loan debt, mortgage debt – it seems as though we can never get ahead because of this constant spending.
It’s widespread to feel overwhelmed when you are paying off multiple debts. It isn’t easy to know what to do next while credit cards ask us to keep spending for more rewards, and lenders grow increasingly desperate as time goes by.
Debt has a detrimental effect on your mental health. Consistently dealing with debt can cause stress, anxiety, or depression. It may also influence how you eat, sleep and interact with people.
How Can We Get Out of The Long-Term Debt Cycle Fast?
The best way to break the long-term debt cycle is to pay off as much debt as you can to create a decent amount of savings.
Once your savings reach a certain level, it becomes possible to invest in higher-cost assets, like homes or cars. When you have enough saved up, you can purchase what you want!
You will also need to consider reducing your spending if you want to stay within your budget. You could try living off less money, cutting unnecessary expenses, or even considering giving up some luxuries you don’t enjoy.
Breaking this cycle takes work, but it is doable and can be done by just about anyone with a job. It is also worth it in the long run because once you have invested in lower-cost alternatives to having a house or car, you will feel more relaxed and confident in your ability to keep yourself within bounds.
7-Steps Guide to Break The Long-Term Debt Cycle
1. Assess Your Financial Situation
The first step in breaking the debt accumulation cycle is to assess your current state of affairs about money. Are you spending more than what you have?
If so, how much are you spending? More importantly, why are you spending so much money? Is it because you enjoy consuming expensive things, or are you spending money you don’t have to impress others or gain their acceptance?
By being aware of the reasons you spend money, you can begin to make changes by limiting your expenditures. Consider lowering your monthly payments so you will not have to devote as much income to repay loans.
It is important to remember that credit cards do not exist solely to give lenders a way to make profits. Credit card companies want your business!
They want your continued use of the card and interest on the loan. By lowering your payment obligations, however, they may offer you better terms since you will pay off your debt faster.
Furthermore, many people develop new hobbies and interests once they get rid of their credit card debts. Having less stress due to financial issues allows them to explore other parts of life.
2. Create a Budget
The next step in breaking the debt cycle is creating a budget. You should do this budget with as much accuracy as possible. Otherwise, you may stick to something other than your spending limits!
It’s easy to spend money that you don’t have, but it takes more effort to spend less than you’ve got. Most people need help managing this.
Most people start budgets at the end of the month when their finances are already complete. A better time to do so is during the week when there’s usually an abundance of income.
By setting weekly budgets, you’ll be more likely to stay within them due to consistency.
3. Eliminate Expenses
Then, you will also need to consider what kind of expenses you can eliminate or reduce. You can do this by staying in lower-income areas or looking for ways to do your cleaning or laundry.
It is widespread for people struggling with debt to add new spending habits that make it more challenging to stay within their budget.
These may include going out every night, buying expensive snacks and drinks, eating at expensive restaurants, etc.
By identifying these expenses, you will have to find ways to avoid paying for them or, if necessary, learn how to do them without wasting money. It is not easy, but this will help you break the cycle of accumulating more debt.
A large part of creating a debt crisis happens because people keep spending money to fulfill their desires. You may like expensive clothes, so you spend money buying new clothing. Or you may enjoy eating food, so you spend a lot on restaurants and grocery stores.
It’s easy to add up quickly when you don’t watch your expenses. But it takes a little while before you are out of cash and struggling to make ends meet.
That is what happened to many of us in the housing market boom. We spent money we didn’t have on a house we wanted more than anything else.
4. Increase Your Income
It’s only possible to break debt if you have enough money to pay it off. Plus, most people spend their income quickly due to habit and influence, so they only set aside a little for savings.
But not having enough money is a choice — you can choose to keep spending more than you make every day, or you can decide that it’s time to change how you live.
You can start by looking at ways to increase your income, for example, investing in stocks and retirement funds, getting a part-time job, starting a business, or other options.
Think about the online side hustle, starting an online store, Amazon FBA store, selling digital items, teaching people online, creating a Youtube channel, or doing affiliate marketing. You can start for free or on a low budget, and people make enormous fortunes online!
Any of these will take some effort to implement, but once you do them, you will feel more relaxed about your finances.
5. Use Credit Wisely
The number one reason people are in debt crisis is that they spend money on unnecessary things or make purchases without knowing if they can afford them.
Often, people feel pressured into buying something that looks expensive or attractive. It may even be someone telling you how much their friend or colleague owns something and how successful they are with keeping up with their budget.
In these cases, we get inspired to achieve the same level of success by investing in the item. An easy way to prevent this is to learn how to spend money wisely.
You can do this by practicing “paying less than you earn.” This habit will help ensure that you only purchase what you have paid off. Also, try not to overbuy, as this could put you in further debt.
6. Prioritize Your Debts
The last step in breaking debt is figuring out how to prioritize your debts. This step is essential because it can significantly impact your debt-relief strategies.
For example, spending money on entertainment expenses (vices) like shopping and eating at restaurants will continue to fuel more credit card debt. Rather than spending less money, you’ll be spending it on additional loans!
It’s essential to recognize that even though one debt may seem more significant or higher risk than another, it could hurt you similarly. For instance, a mortgage loan is much harder for lenders to approve than a personal credit card.
So, use your savings or take-home pay instead of using credit cards to pay for things. Or better yet, consider paying off all your debts with no new loans.
7. Seek Professional Help
In most cases, you will need to seek professional help to keep your debt under control. You can get help from credit counseling agencies or budgeting workshops with certified financial counselors or personal finance experts.
These professionals can help you learn how to manage your money in the long run by giving you strategies and tips for saving, spending, investing, and paying off debt.
They can also help you identify underlying problems causing poor money management.
By working with professionals, you can start fixing your money issues and rebuilding your life savings.
Conclusion
The best way to break the debt accumulation cycle is to recognize it, acknowledge that your spending has outpaced your income, and make changes to address the issues.
If you need to cut back on expenses, do so with a clear goal in mind. It can be as simple as saving for an expensive vacation or investing in new clothes this winter.
Alternatively, you can lower your monthly payments by looking into credit card rewards programs or loan categories such as personal loans where interest is tax-deductible.
In both cases, keep track of your spending to determine if you’re making progress.