A debt cycle is continual borrowing that leads to increased debt, increasing costs, and potential default.
When you spend more than you bring in, you go into debt. At some point, the interest costs can become a significant monthly expense, and your debt increases even more quickly.
The first step to getting out of the debt cycle trap is acknowledging that you have too much debt. Even if you can afford all of your monthly debt payments, you’re trapping yourself in your current lifestyle by staying in debt.
Signs that you are in the debt cycle include:
- You’re living month to month for payday
- You can only afford or struggle to make minimum payments
- Your debt-to-income ratio is more than one-to-one
- Your credit card balances rise month on month
- You’re not saving
If you think you are stuck in a debt cycle or are at risk of getting stuck in one, acknowledging the problem is the first step.
Budgeting is the best way to work your way out of debt, making a plan and sticking to it. See our section on Spending to find out more and to download our free budget template: