The debt spiral- how does it happen?

vicious cycle of debt
vicious cycle of debt

Consumer debt increases globally as most individuals have access to credit cards. Generally, financial institutions have widened their market and this means that most individuals who previously could not access loans now have access to them.

This leads to a vicious cycle of being in constant debt as one may have loans impossible to repay with their current earnings. They then look for ways of getting out of debt, including getting into a debt consolidation program.

How does the debt spiral happen? As early as childhood, we see  struggles that our parents go through so as to pay the bills. And upon graduation  from school, we face the reality of starting off life with debt, with a student loan.

Student loan possibly launch an individual into a debt
Student loan possibly launch an individual into a debt

Although student loans are among the best loans due to their low-interest rates and a grace period after graduation, they may possibly launch an individual into a debt trap.

This is because after graduating, one may face the challenge of unemployment. With no steady income and the burden of debt, one may get a new loan so as to pay off the old loan when it falls due. Also, excessive spending gets most people into credit card debt.

An employee may have little disposable income and may struggle to pay off the debt as well as monthly bills.

This then may lead an individual to seek the services of debt consolidation or other specialist companies which results in taking another loan so as to pay off the existing loans.

Debt consolidation loans offer the chance to make lesser monthly payments as well as lower interest rates. To find out if debt consolidation would be ideal for you, use a debt consolidation calculator. This also indicates the debt consolidation program that would be suitable for you.

Debt Consolidation Program
Debt Consolidation Program

With status comes additional lifestyle needs such as the need for a car and entertainment. These are additional expenses for an individual who may already be struggling to pay credit card debt, student loans or any other type of debt.

Secured loans are risky
Secured loans are risky

Mortgage loans may also increase the total debt that an individual bears. Secured loans are risky as they are tied to the debtor’s assets.

Should an individual be unable to pay the amount of the loan, the creditor will come knocking and eventually claim the assets.

Assets would then be auctioned so as to liquidate them and the funds will then be used to clear the debt. This is the reason why foreclosure has become a worrying trend.

Bankruptcy has become a reality due to the high interest charged on loans, especially unsecured loans.

Although an individual may avoid bankruptcy and manage to pay off their debt, this situation will have probably left them barely struggling to make a living.

This may eventually lead to a repetition of the debt spiral if an individual does not make sound financial choices and does not make a conscious effort to limit their spending. A monthly deficit leads one to constantly live in debt. Debt spiral can be avoided if an individual works on increasing his income and limits his spending.

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