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What to do When Your Debt is Spiraling Out of Control

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What to do When Your Debt is Spiralling Out of ControlDebt isn’t always a bad thing but managing it takes a lot of time, a good handle on math and a firm grasp on your expenses. It’s no wonder that so many people start with a tiny loan, default on one payment and get sucked into a financial black hole as a result!

The biggest problem with debt is that you have to be certain you will be able to afford the repayments before you take the money. For people who are forced into debt by unexpected problems and those who are suddenly hit by another financial issue, this certainty simply isn’t possible.

So what can you do when your debt is spiraling out of control?

Bankruptcy

In the most serious cases, where debt has truly taken over, bankruptcy can be a good option. Declaring bankruptcy sound scary and it does come with its own costs and future lending implications. However, if you are unable to keep up with payments and you are out of options, bankruptcy can help to protect what little you have left so you can effectively begin again.

Bankruptcy is the very last solution to unpayable debt so do think it through carefully and speak to a financial advisor before going ahead. You should also know that creditors do have rights too and creditor protection in bankruptcy may impact your bankruptcy options.

Repayment Strategies

Though spiraling debt is a huge problem, with the right strategy you can defeat it. One of the main reasons that debt spirals is that people can’t control their spending in order to pay off the first debt so they take out more and more debts and interest rates go up and up and up.

For this reason, the snowball method is really effective. The idea is that you pay the minimum repayment on all your debts each month then start overpaying on the smallest. Once the smallest loan has gone, you can continue to pay the same amount, but this time to the next loan. As your loans start to vanish, you can increase payments and eventually all the debt will be gone.

Saving While You Repay Your Spiraling Debt

Falling into debt is something that can be easily done. Even if you have savings, if you owe money on a loan or credit card, you are considered to be in debt because you’re owing money that was never yours in the first place. So how do you avoid getting into debt? Image Source Don’t Live Beyond Your Means It seems obvious right? But how many times have you pushed the boat out maybe a little too far one night and then you’re living on noodles until the next payday. This isn’t the way to live, and it’s no fun either. Be wise and don’t live beyond your means as much as it’s tempting to spend the money haphazardly, you’ll end up regretting it if you’ve not got the money in the bank to pay for your rent or mortgage repayments. Draw up a budget plan of what you receive each month and what you spend your money on. If you find yourself in the red, look at ways you can save money. You might need to make some sacrifices, but it’s worth it to live more comfortably financially. Cap Credit Card And Overdraft Limits To stop yourself from spending money that you don’t have, it’s useful to cap your credit card limit. The same goes for any overdrafts you have on your bank accounts. Limiting the amount you can borrow is going to stop you from getting into a sticky situation. As an ideal capping limit, cap it at a month’s worth of wages. At least then, you can’t spend beyond what you bring in from work each month. Credit cards should only be used when desperately needed. The sooner you pay off your credit card, the better. Have An Emergency Fund An emergency fund gets significantly more important as you get older. You never know what might be around the corner and it’s most likely going to cost you money. So it’s worth putting a bit of money aside each month that can go straight into an emergency fund. Lock away that card associated with the account and only bring it out in an actual emergency that you can’t fix with your credit card. That’s why it’s an emergency fund because it’s only meant for emergency situations. Get Help If It Does Get Out Of Hand Debt can often spiral out of control very quickly, so if you do find yourself in trouble, it’s worth seeking advice and getting help as soon as possible. And in situations such as this, it’s worth approaching Tully Rinckey to see what legal aid you can get in helping to resolve any problems before it’s too late. Never keep quiet about your situation, no matter how awful it may seem. There’s always a way out, and it’s good to get help as quickly as you can to minimize the damage. Debt should always be taken seriously, and whenever your spending gets out of hand, there are ways that can help keep it under control. Make sure you’re keeping tabs on your budget and get help if your financial situation gets really bad.It might sound weird to be saving while your debts are spiraling but here’s the deal. To get out of debt, you need to budget and figure out your strategy but you will also need a fall back just in case things don’t go as planned. Saving and paying off debt are not mutually exclusive. In fact, draining your savings in order to pay off debt could be a really bad idea that lands you in debt all over again later on.

While your debt is spiraling out of control and you are just beginning to claw your way back, saving may just be a bit too much at once. But, if you are using the snowball method, once that first debt has gone, you can use some of the extra income you now have to start building a savings account.

Your debt might feel like an unworkable monster right now but with the right strategy, you can overcome it. This is a marathon not a sprint but you can take your first step right now.

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