Are you in a debt spiral? That moment when the bills start to pile up and you can not get out of it anymore? This is the spiral that many people enter and spend years trying to get out, a snowball that turns an avalanche of accounts and arrears.
When someone is in a snowball debt, everything seems to be spinning out of control. It’s like an airplane out of control, and nothing will get you on the right track until the pilot gets back in control. Except that often the only way out comes after they hit the bottom of the pit in the moment of despair. Already the saying goes: “A wise man can see more from the bottom of a well, than a fool from the top of a mountain.
What is a debt?
The debt spiral begins innocently, with something as simple as a credit card. When someone has a credit card but does not have the ability to use it properly, they start buying things they would not normally buy because they feel they now have the money for that particular item. This is a common belief among those who have no experience with credit. They feel that credit is really the money they have at hand when in fact it is you borrowing money that you do not have to buy things you do not need.
This is where the debt spiral begins. Soon, the individual will have another credit card or perhaps several others because they believe that they will use them wisely. Unfortunately, they will not. Instead, they begin to put more and more money into their credit cards, before realizing that all of a sudden, their credit card debt is out of control.
At that same time, they usually already have the debt of a mortgage, or the installments of a car to pay, adding up to their bills. In an effort to pay off debts, people start using their credit cards in the worst possible way, paying off the bills, paying the minimum installments and paying the highest interest rates on the market.
Without financial control, a well done budget and believing you will get out of debt by miracle, you will even end up in a bottomless pit of debt. (Photo: www.beatdebt.info)
But is it not to pay my bills for my bills?
The reason for not splitting bills or paying the minimum credit card bills are not the right things to do is instead of using your money, which does not charge interest, you are simply transferring your debts in an effort to look like you are paying your credit cards or your loans. In some cases, people even end up selling goods to pay off debts, losing precious things like vehicles, jewelry, and, in more serious cases, to their homes. All because of interest.
Cumulative interest and increased debt
The problem of trying to pay your bills without planning is that you will be piling up interest on interest without first having a plan on how to stop spending the money you do not have and start paying your bills with your money. In the hour of desperation, you will use the more expensive interest payments, installment of the card, and quickly end your emergency fund, because the debts will be higher than your salary.
Here’s a simple example. In a year, on average, credit cards charge more than 290% interest on installments of credit card bills. That is, that your minimum bill payment, in fact, will be increasing your credit card bill by 12% per month. Think that your initial invoice was $ 1,000 and you start paying only the minimum of the invoice every month. Along with interest, will also be the Tax on Financial Transactions (IOF).
Paying only the minimum 36 times, you still have a final balance of the invoice of $ 244.56, that is, after 3 years, you have not yet paid your invoice in full. And besides not having paid your bill of $ 1,000, you will have paid, in interest and IOF, in the 36 months, the amount of R $ 2,204.02. Do you think 36 months is a long time? Well, in 12 months, you will have paid R $ 1,095.33 only in IOF and interest, not counting the principal you have to pay for your invoice. For those who have a salary of $ 2,000, for example, you can see that quickly, more than 50% of the salary will end up only in the payment of debts, not counting the bills of water, electricity, mortgage, rent … An avalanche of accounts and that will suck all your savings, taking you to the brink of bankruptcy. It is the power of interest on your debt.
What are the causes of snowball debt?
Credit cards, overdrafts, moneylenders, financial and the famous claims for negatives are the biggest initial causes of debt spirals as it has the highest interest rates. This means that they are the most expensive loans, ie the ways to get money with higher costs for borrowers and higher profits for banks. In short, almost always, the easier it is to borrow the money (card, overdraft, etc.), the higher the interest.
Is it possible to get out of debt?
Of course, you will want to get out of the debt spiral before things get too difficult, and there are a few ways to do this without having to sell your assets or declare bankruptcy. But how do you get out of a snowball debt? Through debt consolidation. This will allow a person to take all the debt that they have, which can involve several different payments and bills, and combine it into a large single payment, usually in the form of a personal loan with lower interest than the credit card or overdraft. This is a great weapon for anyone because it gives them the ability to start putting things in order.
The second way out of snowball debt is by using the snowball technique, which starts from a family budget. This will allow the person to organize his or her finances and figure out how to start paying for things, starting with the larger interest debts until they are completely paid off and gradually passed into smaller interest debts. It is also important to negotiate your debts during this process, to try lower interest rates.
You can also use the comment space below to tell us your situation so we can help you get out of debt. Or hire the services of a financial advisor. Whatever your choice, it is important to rush back before it is too late to get out of debt.