This is the spiral that too many people get into. When someone is in the debt spiral, everything seems to be spinning out of control for them. It is like a plane that has gone into a tailspin; nothing is going to pull that plane out until it crashes, and the same is true for those in the debt spiral. Often the only way out comes after they hit rock bottom.
The debt spiral begins quite innocently enough. Usually it begins with something as simple as a credit card. When someone has a credit card, but lacks the ability to use it properly, they begin to buy things they usually would not, because they feel they now have the money for it. This is a common belief among those who are not experienced with credit. They feel that the credit is actually money they have, when it is borrowing money they do not have. Usually, they will borrow money they do not have, so that they can buy things that they do not need.
This is where the debt spiral begins. Soon, the individual will get another credit card, or maybe several more, because they believe that they will use it wisely. Sadly, they do not. Instead, they begin to put more and more money onto their credit cards, before they realize that suddenly, their credit card debt has become out of control.
At this same time, they usually already have the debt of a mortgage and car payments on their finances too, so things are really beginning to add up. In an effort to pay things off, they begin using their credit cards in the worst way possible; using credit cards to pay debt.
The reason this is not the right thing to do is because, instead of using money, which does not have interest, you are simply transferring money around your credit cards in an effort to look like you are paying off your credit cards. The problem is that when you use credit cards to pay a bill like this, it is seen as essentially a cash advance. Cash advances use incredibly high interest, which then causes you to owe even more money on that credit card. Therefore, you begin trying to pay back your credit cards using credit cards, which quickly spirals out of control with the more you take out, and the more interest you are forced to pay. Many people then are using most of their income to pay off their debt, leaving only a little bit left over for food and other bills. Therefore, to be able to pay their other bills and buy food, or even gas, they go after Pay Day Loans. Pay Day Loans are something that you should avoid at all costs when you are in the debt spiral. It is like hitting the gas on the spiral, only getting you to the end result of rock bottom faster.
Pay Day Loans, especially the less reputable ones, use incredibly high interest. Some places have been known to charge as much as 500 percent interest on the loans. Typically, things will run like this:
You take out a Pay Day loan for $100, and you agree to pay back $140 (a relatively low interest rate for a Pay Day Loan) in two weeks. Two weeks comes by, and you don't have all the money you need to pay back the loan, so you take out a $140 loan to pay off that $140 loan, but now you owe $180 in two weeks. Two weeks later, the same thing happens and now you have to take out a $220 loan to pay off everything. This keeps rising, and before you know it, you are getting some very angry calls.
As you can see, this will only push the debt spiral further, and faster to the inevitable end of bankruptcy.
Getting Out of The Spiral
Naturally, you are going to want to get out of the debt spiral before things get too difficult, and there are a few ways to do that without declaring bankruptcy.
The best way to get out of the debt spiral, is through debt consolidation. Debt consolidation will allow a person to take all the debt they have, which can be several different payments and bills, and combine it into one big payment, where the individual will make monthly payments to pay it all off. This is a great weapon for anyone in the debt spiral, because it gives them the ability to start getting things back into order.
The second way that things can be put back in order is by halting all debt and beginning to use a budget. This will allow the person to organize their finances and figure out how to start paying things off, even with minimum payments, so that they can slowly eat away at the debt over a period of time.
Another great way to get out of the spiral is to get a credit counselor to help. Credit counselors are trained to deal with out of control credit and help an individual get back on track with their finances. They are usually highly successful at it and many feel that they are a debtor's best friend when the debt spiral takes over the individual's life.