How to get out of the debt loop?

A credit spiral, or debt loop, is a situation in which a person takes out one loan just to pay off another, or enters into such a large number of obligations that without a proper plan it may not be possible to get out of it. In today’s post, we explain what exactly a credit spiral is, what to look for when using bank financing, and how to get out of a debt loop when it inexorably tightens around our neck.

What is a credit spiral?

Before we present some proven ways on how to get out of the debt loop, it is worth paying some attention to explain what a credit spiral is, in what situations it most often arises and why it is a problem that should not be ignored. After all, getting out of a debt loop can be extremely complicated, and unwise management of finances and a steady increase in debt often leads to consumer bankruptcy.

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A credit spiral or, interchangeably, a debt loop is when a person who has an active credit obligation takes out a new loan just to pay off a debt at another financial institution. He or she then does it once again, because once again there are not enough funds to repay the debt incurred. This situation can repeat itself many times, as in Madoff’s financial pyramid, inexorably leading to “financial failure.”

How does a debt loop occur?

However, a credit spiral alone is not the only reason that can lead to a debt loop. Admittedly, we use these terms interchangeably, but in this section we will separate them somewhat. After all, let’s note that a debt loop can also arise in another way, namely on the back of our recklessness and whims that we cannot realistically afford.

credit spiral
Credit spirals most often occur at our own request. Photo: walking photographer/canva


Many people, in order to reward themselves for the “hardships of everyday life” busying themselves in stores, take out a new installment loan every now and then, passing by a travel agency, buy a trip to the Maldives (on credit, naturally), seeing a huge new TV “must have”, and since the neighbor came with a new car, we can’t be worse and rush to the car showroom.

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This kind of reasoning causes the number of items we surround ourselves with to increase day by day, but at the same time our possessions decrease. Working for a salary, which we spend on bills, fees, loan and credit installments, we reach the proverbial wall, that is, a situation in which, apart from obligations and expenses, we have nothing. From the salary there is no longer enough for anything, and after all, we worked “all month”, which naturally needs to be compensated. How? With another trip – on credit, of course.

How not to fall into a loop of debt?

This question can be answered with one phrase. Keep your sanity. However, this would be too laconic, so we will try to write in a few sentences how not to fall into a debt loop and what we should beware of so that it does not happen.

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The first and by far the most important factor that causes us to fall into financial problems at our own request is recklessness and the desire to please others. We put the two factors side by side because they extremely often go hand in hand.

Take a neighbor with a new car as an example. Is it really how other people look at us that is so important? If we don’t have enough cash, while we already have a car, for what real purpose do we buy a new one on credit? Is it necessary for us? After all, we already have another one. How will we pay it off? What if we get sick and can’t pay the installments? Do we buy it for ourselves, or perhaps for a neighbor after all?

The desire to please others is an extremely common sociological problem, but it is one that is quite often behind recklessness in taking on new credit obligations.

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Another reason why many people fall into a debt spiral is the desire to pay themselves “something.” Each of us can put our own reason for this, but usually it’s about work, a relationship, responsibilities. Do we really give so much of ourselves that we deserve a vacation for 20,000? If so, why can’t we finance them with our savings? Yet, perhaps our efforts were not as much as others – those who go to the islands after a successful business deal? Looking at pictures of people on social media, we envy them, we want to live like them, but we don’t know either how they earn or how they financed the trip.

Fact, for a few days we will feel better, but the following months will bear the necessity of paying loan installments, and the salary has not magically increased in any way. There can be really many similar examples and reasons, and it all depends entirely on how we consume the available goods and how often we reach for them on credit.

How to get out of the debt loop?

First of all, a plan! After all, there is no other effective way to get out of a debt loop than to make an examination of conscience, point out all the obligations weighing on us, tighten our belt and … painstakingly, slowly and regularly repay.

Accurately determining the amount of debt, estimating our monthly capacity, and then contacting our creditors and reaching an agreement on a repayment spread over a long period of time is the only solution to get out of the debt loop. Burying your head in the sand, not answering the phone, avoiding contact with banks or other creditors, is a straightforward path to consumer bankruptcy.

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