Debt spiral – what is it and how to avoid it? – Loan Consolidation
Managing your home budget is not easy. Especially when there are sudden expenses that we are unable to deal with on our own. In such situations, non-bank companies often appear that offer loans at our fingertips.
With no money in installments, we often reach for quick payday loans to avoid delays. Such activities only lead to a spiral of debt, because a short-term loan must also be paid back on time.
By paying off the debt
We promise ourselves that this is the last payday loan, but in reality, this is just the beginning of a difficult adventure with parabanks, which can lead to the loss of all property.
Exiting the spiral of debt is a very difficult and time-consuming process. If it has already happened that we cannot afford the repayment of installments and we live from month to month thanks to non-bank loans, you need to consider consolidation of installments. Thanks to this, we will pay one smaller installment.
What is a debt spiral?
A loan loop or debt spiral is a serious problem for the borrower. The debt spiral phenomenon occurs when the number of financial arrears that we do not pay back on time increases.
A quite significant mistake we make is to take further installment loans, which are supposed to help pay back at least part of the debt. Very often, customers use this method until subsequent companies refuse to borrow cash.
You can get into financial trouble very quickly, especially if you have a free attitude towards money. At the very beginning, it may seem to us that incurring one commitment to pay the previous one is a good idea, but before we look at it, we’ll take the eighth loan to settle the seventh. It’s a vicious circle.
When we finally realize that the financial loop has swallowed us up, it will be too late to leave it, because we will not avoid the consequences of unpaid loans.
How to avoid a spiral of debt?
Nowadays, to avoid a spiral of debts it is important to carefully analyze your situation before taking a loan or taking out a loan. Then you should realistically assess your repayment options. The easiest way to do it is based on your home budget, which makes it much easier to know your finances.
The reason for the spiral of indebtedness is excessive borrowing, so we should keep our budget, which will help us organize our finances and determine for what purpose we can save money. When planning your budget, always try to be “in the plus”. Let’s prepare a statement of expenses and revenues, and if there is a surplus amount left – treat it as savings.
It is also worth setting a goal for saving – the systematic collection of money for a specific purpose will make the thought of taking loans and loans not even come to our minds. We will also be able to realize our own dreams – e.g. a trip that we have long wanted to go on.
Let’s prepare a financial “reserve” – the so-called financial cushion will provide us with protection in the event of illness, job loss or unforeseen expenses. As well as try to borrow reasonably, if we need a sudden injection of cash, and we do not have other financial reserves, we can use the loan. Let’s think carefully, however, whether we can afford to pay additional financial burdens.