As a personal financial counselor, I often meet with clients who find themselves in a debt spiral and don’t know how to get out of it. The debt spiral is when someone takes on debt and then gets behind on their payments. After trying different tactics, with little success, the debt only increases. This spiral can be very frustrating and painful. To help rise above the debt spiral, I recommend following these three steps:

Step 1: Reduce lifestyle spending

This step will force you to consider each expense and decide if the cost can be eliminated or reduced. Creating a spending plan is a great tool to get the process started. First, examine the variable expenses because these can be easily adjusted. For example, you may reduce the amount spent on dining out by cooking at home more often. Next, examine the fixed expenses that may require more time and effort. For example, you may move to a less expensive home. This first step may require some sacrifices, but it is paramount to ending the debt spiral. 

Step 2: Stop using credit

When you stop using credit, it allows you to focus on paying down your debt while not incurring any new debt. Using credit to get out of debt is not a good idea and can often slow down the process. Once the debt is eliminated, you can use credit again, but it should be used more strategically this time. Pay off the entire balance before the due date. This is like getting a 0% interest loan from the bank. However, temporarily abstaining from using credit cards is essential when getting out of debt.

Step 3: Increase savings

According to most experts, it is recommended that you have enough money in your savings to cover 3 to 6 months of your living expenses. Increasing savings should become more comfortable after you reduce spending and stop using credit. Some recommendations to help boost savings are to sell things that aren’t needed anymore or to find a part-time job. Increasing savings is critical to financial health. For example, if your car needs immediate repairs, your emergency fund can be used without taking on more debt. An emergency fund can lessen your risk of re-entering the debt spiral.

By implementing these three crucial steps—reducing lifestyle spending, stopping the use of credit, and increasing savings—individuals can effectively break free from the cycle of debt. As you progress through this process, you will not only eliminate existing debt but also build a stronger financial foundation. This foundation, bolstered by an emergency fund, will provide peace of mind and protect against future financial setbacks. Ultimately, rising above the debt spiral requires discipline and patience, but the rewards are well worth the effort, leading to a more stable and secure financial future.

Cain T. Hill, AFC®, is an AFCPE® board member. Visit Cain’s FindAnAFC profile to learn more about his professional services and to contact him for financial counseling, coaching, or education services.  

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