Debt spiral – how to get out of it?
Have you fallen into a spiral of debt and wonder how it happened? Surely it all started quite innocently. The first commitment on seemingly attractive terms. Money invested in a new car, apartment renovation or vacation. The bank offered a revolving loan on affordable terms, why not use it? One commitment, another, another … Before we looked, we fell into a spiral of debt, from which it is difficult for us to get out. How to deal with the debt loop?
Debt spiral – what exactly is it?
In Poland, around 30% of people have active liabilities in the form of non-bank loans and traditional loans. Some debtors do not regularly pay their liabilities. Subsequent loan installments, rent payments, utility bills and telephone bills – the payments accumulate one on top of the other. Calls for payment are starting to appear in the mailbox , and telephones reminding of increasing debt are interrupted. The specter of bailiff enforcement begins to circulate over the debtor. This is a picture of the everyday life of a person who has fallen into a spiral of debt. The debt spiral, also known as the debt loop, is nothing more than a situation where spending is greater than income.
People who consider consolidating loans in a timely manner may avoid getting into financial trouble. Debtors who fall into a spiral of debt are looking for help in loans without BIK or loans for those in debt. However, this is not always the best solution, because instead of averting the crisis, you can really deepen it.
Living on credit – how to end it?
People who are struggling with debts will sooner or later realize that their financial situation is deplorable. Problems aggravate further adversities – sudden loss of job, no orders, accident or illness in the family. We speak of a tragic situation when expenses are higher than income and revenues are not sufficient to cover current liabilities or even living at the lowest level. How do you end up living with a debit?
Leaving the debt spiral – difficult beginnings
There is no golden mean on how to get out of debt. Each person is different, has a different life situation, different mental resilience, and different debts. Each debtor should therefore take his own way out of the spiral of debt. However, there are some general rules that can facilitate this. Among them are:
- defining an action plan,
- minimizing expenses,
- analysis of the current financial situation and financial capabilities of the household,
- seeking right help if we suspect that we may have been the victim of a dishonest loan company,
- going to a financial advisor for advice,
- looking for additional sources of income.
Define the action plan
The biggest mistake that debtors make when they have trouble repaying obligations is to avoid contacting the creditor. Doing so only makes things worse. It will soon become clear that a bailiff is knocking on the door who wants to enforce the outstanding obligation. The bank account will be taken by him and some or all of the property will be auctioned off. Each of us can fall into the spiral of debt. So let’s know the rules for creating an action plan for such an eventuality. Here’s what you can do:
- start negotiations with a loan company – request extension of the repayment deadline or spreading the resulting debt into installments,
- take advantage of the loan refinancing option,
- negotiate terms with the debt collection company – it also wants to recover money.
This is the basic principle of getting out of debt – both the smaller and the larger ones. Changing your spending habits will help you gradually get out of debt. All expenses should be minimized, at least for the time of getting out of debt. Later, however, it is necessary to start rational household budget and build a financial cushion. This will prevent you from making mistakes again.
What you can save on:
- replacing a car with a bicycle or public transport,
- restriction of going out to the city,
- eating meals at home,
- making a second breakfast for work or school at home,
- buying cheaper food substitutes,
- “Hunting” for sales.
Analysis of the household’s financial situation
To analyze your financial situation, you need to set up monthly revenues and expenses. This will help you estimate how much money you can spend per month to pay your liabilities. If expenses exceed income, we have two options:
- minimize expenses,
- maximize your income.
Where to look for help?
Many people do not inform their loved ones about financial problems. They are ashamed to ask for help and admit defeat. However, if we have such a trusted person, it is worth going to him for support. Maybe together it will be easier to find a solution to a difficult situation. You can always use the help of a financial advisor to help you outline your action plan.
Searching for additional sources of income
Passivity is the worst solution. To help yourself, you must take action. It is worth considering finding additional sources of income. They can be:
- Overtime – maybe the workplace where you work allows you to do overtime.
- Extra work – it may be distributing leaflets, working as a pizza supplier on weekends.
- Sale of unnecessary items – these can be brand clothes that we no longer wear, things from children, toys, a pram.
- Car sale – if you can commute to work by public transport or bicycle, consider this solution. After the financial crisis is over, we will be able to buy another car.