Loans and credits can help us achieve our goals and dreams. It is a great supplement to our budget in difficult situations. At the same time, if we do not manage to incur further financial obligations, there is a risk of falling into a spiral of debt.
What is a debt spiral?
We are talking about a spiral of debt when the number of various financial arrears is constantly increasing, while more loans are taken out to pay back previous ones. Sometimes, in fact, old obligations are regulated, but new ones arise that are larger than the previous ones. This method works, to a critical point, when loan companies refuse to borrow cash.
Unfortunately, you can fall into the debt spiral very quickly. The initial symptoms of falling into a spiral of debts are practically imperceptible – we have trouble paying off one commitment, so we just take another and everything looks good. You finally managed to pay back the loan. However, problems arise with paying off the next one, so you take the third one. And so you start to fall into a vicious cycle.
How to avoid a debt spiral?
Although falling into a spiral of debt is a real threat, you can avoid it if you approach it properly.
First of all, in order not to fall into a spiral of debt, you should judge your financial standing sensibly. Of course, banks and non-bank companies assess the creditworthiness of borrowers, but they are not able to check everything. Common sense is the most important at the stage of making a financial commitment. However, at the repayment stage, remember to pay your liabilities regularly. This is a very important element. And first of all, when there are problems with repayment, think about whether you can’t do it. Very often giving up pleasure and tightening your belt will allow you to repay your loan on time.
If you have trouble paying back, do not take another loan, but contact your lender.
Very often it will be possible to change the installments and postpone their repayment dates. This may involve additional costs for the loan, but it is still a better solution than taking out more loans.
Remember that you can fall into a spiral of debt, even starting with loans and borrowings initially drawn at very small amounts. That is why from the beginning it is important to use common sense.