The debt cycle isn’t the most comfortable place to get stuck into. With a lot of low-hanging fruits offered in the marketplace, many individuals or businesses hang on to loans or credit cards for making ends meet. Is there a way out of this mess or do people just run in circles with this dilemma?
If you have been experiencing paying off debt and then getting a loan again then you are trapped in a vicious debt cycle. You are not alone. There are thousands to millions of people in the world who can’t seem to get out of this limbo and struggling to cut the pattern.
Here’s an interesting video we found on how to get unstuck from the credit card debt cycle:
Is It A Productive or Unproductive Debt Cycle?
Not all debts are sinful. In fact, many giant brands have managed to grow their businesses because of productive debt. This means they had to borrow money in order to fund a business idea and turn it into enormous profit.
Productive Debt
A debt is considered productive if you use it to invest in a unit or something that has immense value and that in turn, you will gain profit in excess of the debt repayment. This becomes an investment venture that allows you to spread your risks and gain traction in your business. It also goes the same with funding your education which is investing in your skills for future endeavors.
Unproductive Debt
Borrowing money or using your credit cards to purchase or get cash advances becomes unproductive if you invest in a business without any feasibility study or with unrealistic expectations. In the end, the business loses its economic value and the profit isn’t even enough to repay outstanding loans.
Credit Cards – Shop Now and Drown in Debt Later!
This is a lingering problem for many households in Canada who according to studies, have now an accumulated average credit card debt that sums to $4,270. Furthermore, Canadians hold a whopping total of $599 billion of non-mortgage debt alone. The statistics says it all.
Credit card interest rates can crush you completely without even realizing it. If you are a typical credit card user, you would most likely just pay the minimum monthly and feel that would be enough to cover your loans. However, credit cards have very high interest rates, so even if you keep paying the minimum every month, your interest just compounds. This means the credit card interest just keeps going up as it accumulates interests over a period of time. Credit cards may be arm you with the confidence to go on that shopping spree but it will drown you to debt.
How to Get Out of the Credit Card Debt Cycle
When you start living beyond your means and rely on credit cards to survive then you start being crushed and strapped into a debt cycle. It becomes very difficult then to stretch your income and eliminate debt completely. But, there is always a way out of it. Here are the ways on how you can finally break away from the credit card debt cycle:
Know your numbers
The best way to be armed against credit card debt is by understanding your accounts or finances. A lot of people spend mindlessly because they really don’t have an idea on their personal or business finances. Financial management and literacy is basic to handling your money and debts. Basically, you need to know and understand your current financial status. You have to track how much you earn and where it goes. It’s easier if you keep receipts and records of all your transactions in paper or a spreadsheet. Go over your credit card bills and bank statements and check for irregularities. This is how you understand where you allocate your money on a monthly basis.
Create a budget plan
Now that you already have an idea of your monthly income and expenses, then you can easily create a budget. Aside from your regular expenses, you must prioritize paying off debt. You need to check where you can cut expenses like eliminating coffee shops from your daily itinerary or cutting on smoking or drinking liquor which does not just hurt your pockets but also harm your health. Consider getting a cheaper mobile plan too or maybe spend less on your trips to the salon.
Pay off your debt
The best way to get out of the credit card debt cycle is to pay it off. You have to face the numbers and start paying. While it could be overwhelming once you have the exact numbers to pay. You plan and then budget accordingly to be able to pay off your debt completely. This is the only real solution to it.
Forget credit cards and start spending in cash
In this way, you only spend what you can afford. If you have to use a credit card or take out a loan for a purchase then that means you can’t afford it. So, don’t try to keep up with other people’s lifestyles and start focusing on your own finances. When you spend in cash, you become more responsible with your spending habits. This helps stop impulsive shopping and allows you stick to the budget plan.
Make extra cash
If you have been living from paycheck to paycheck then it could be a cycle that you have to fix as well. You have to create more streams of income if you want to get out of the debt cycle. You should not depend on one source of income and capitalize on your skills and time to create additional revenue.
Conclusion About Getting Out of The Credit Card Debt Cycle
It’s a real nagging problem when people spend more than they can actually afford especially when armed with credit cards. This makes people feel invincible and confident when shopping that they can purchase anything without even thinking if it’s a necessity or a luxury. Thus, the first lesson you need to learn with cutting off credit card debt cycles is to try to live within or below your means.
It’s a hard habit to break but it’s worth it in the end especially if you get to eliminate the stress and sleepless nights that debt cycle can do to you. There is a way out of this tiring debt cycle, rewire your financial goals, don’t live the luxurious life if you have an average income, and pay off debt starting today.
