Have you ever heard of the phrase “vicious cycle of poverty”? This is a concept of economics which states that low income leads to low savings and investment, which further leads to low productivity, which brings an individual back to square one, that is, low income. There is another concept that might not have made to the textbooks yet but stands as important as the vicious cycle of poverty, and that is the vicious cycle of loans. So here is an example that would make the concept clear. You land yourself into a great job that pays you handsomely, and then you find yourself being increasingly drawn towards the grandiosity of materials. You feel that it is quite all right to apply for a car loan because you earn enough to repay the loan on time. Sounds good, right? Now, your desires increase tenfold once you have gotten the taste of easy loans. So you apply for more loans, or maybe apply for a credit card online; and before you know, you are trapped inside the vicious cycle of loans and debts.

Now the question is, do you decide against taking a loan, or do you take up the necessary precautions before applying for a loan? In an ideal world, it would be fantastic if you could do without loans, but it is not a utopian world where everyone has an equal share of the pie. Some of us need to fight for it. Thus, in this not so ideal world, loans at times become imperative. The point is not to ditch loans altogether, but to be smart enough not to be held up in the toxic debt cycle. There are always ways to break the cycle.

Avoiding the debt cycle

The best way to break a debt or a loan cycle would be to avoid the debt cycle. It does not require much of you to prevent the culmination of debts. All you have to do is keep an account of all the loans and the deadlines. Also, make sure that your principal amount is well within your budget constraint, lest it might become challenging to keep up with the deadlines.

You might not make enough to repay your loans on time, which is why it is crucial that you stay within the confines of your income. Always try to avoid applying for multiple loans or person or business credit cards. Banks are money miners. All they know is how to fleece people. This is the ultimate and the ugliest truth about financial institutions that you must keep at the back of your mind while applying for loans. The offers and the interest rates might be exciting and lucrative. However, it will not take the blink of an eye for retail or commercial banks to spew fire once you miss the deadlines of repayment.

Breaking the debt cycle

You might take all the necessary precautions, yet fall in the trap of debts. That is human folly. We are not perfect and calculative machines. We err. Therefore, you must arm yourself with the knowledge of breaking the debt cycle if you happen to find yourself in one. Start by snapping out of that denial mode. Yes, you are knee deep in debt. So what? You cannot just give up or stay in denial. Therefore, what you must do is acknowledge the fact that you have debts to clear. This would be step one. Now that you have acknowledged your condition, you can finally start creating a plan to clear the debts and move on. Create a budget plan where you can log in all your expenses and the income. It shall make it much easier to track your cash flow and strike up a plan. What you could also do is get a part-time job if that suits you and make some extra money. It is a great way to clear off all your debts. The final thing that you must keep in mind is that you have already incurred much debt, and thus, you must cut down on your expenses in every possible way, and also fight that impulse of borrowing more from friends or a financial institution. It shall only make things worse, and before you know, you shall find yourself in legal complications.

The bottom line of the article should be that falling prey to the viciousness of loans is pretty straightforward. We are human beings after all, and to err is human. However, every situation has a cheat code, a fail-safe.  A situation might look as bleak as possible, yet there are always ways to turn the tables around. Handling finances is not an easy game, especially when you are just starting with your career and have way too many dreams. It is easy to be side-tracked and lose sight of what matters. It takes a whole deal of experience for the realisation to sink in that money is essential to thrive in a world like ours. Working out the right ways to go about loans, debts, and bills take time. Therefore, if you are one of those who have gone wrong, do not fret. You can always recover from a bad debt cycle and start afresh.