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5 Signs You're Stuck in a Cycle of Debt

Written by
Andrew Tavin, CFEI
Andrew Tavin is a personal finance writer who covered budgeting with expertise in building credit and saving for OppU. His work has been cited by Wikipedia, Crunchbase, and Hacker News, and he is a Certified Financial Education Instructor through the National Financial Educators Council.
Read time: 6 min
Updated on July 27, 2023
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Feeling like you can’t get ahead on your bills? Living paycheck to paycheck and making minimum payments may confirm you need a new system.

The world is filled with many wonderful cycles. Let’s consider some of them, shall we?

There’s the bicycle, of course. It’s a good method of transportation that doesn’t add to the carbon emissions in the atmosphere, and it’s a great form of near full-body exercise, as well.

The unicycle has all of the same benefits of a bicycle, but it’s much harder to use.

If you like being alive, then you must also be a fan of the Krebs cycle, one of the necessary processes for cellular respiration.

Unfortunately,  not all cycles are so lovely or good for our health and well-being. For example, you don’t want to find yourself trapped in the dreaded debt cycle. Yes, this is a cycle in which you get behind on your financial obligations and fall further and further into debt. You may not even realize you’re trapped in the cycle until it’s too late — which is why we spoke to the experts.

Continue reading to learn the telltale signs of a debt cycle, so you can figure out a way to either avoid or escape one.

Sign No. 1: You’re living paycheck to paycheck

Even if you’re not loaded down with debt at the moment, if you’re living paycheck to paycheck, then you could be trapped within a debt cycle. One unexpected incident or expense can cause the cycle to rev into full gear.

Ryan Luke, personal finance blogger at Arrest Your Debt, says a paycheck-to-paycheck lifestyle is one of the most telling signs you are experiencing a debt cycle.  “After the bills come in each month, you have absolutely no money left over,” he says. “In fact, you more than likely needed to put this month’s grocery bill on a credit card with the hope to pay it off next month.”

Sign No. 2: You can only make minimum payments each month

Maybe you can still technically pay your bills. But if you’re only paying the minimum requirement, you’re going to be dealing with more and more interest that can quickly bury you, according to Beverly Friedmann, content manager for ReviewingThis.

“If you're only making minimum payments on all of your monthly expenses, or having trouble meeting minimum fee requirements, this is a red flag for impending or existing debt,” she says. “Agencies and credit issuers love when you make minimum payments because they tend to collect the highest interest rate fees, so you'll end up spending more over a longer period of time.”

Sign No. 3: Your debt-to-income ratio is no good

On the most basic level, the debt cycle occurs because your income is being eclipsed by your obligations.

“If your debt to income ratio is more than one-to-one, you’re digging yourself a hole,” says Zachary Siegel of Sprout Lending. And that hole may be difficult to escape. “However, if you work with good people and invest the debt in items that generate a positive return on investment, it isn’t hard to overcome. The richest people leverage debt to accumulate more wealth.”

Sign No. 4: You’ve got credit card problems

If you’re blowing through your credit limits on the regular, that’s not a good sign.

“If your credit card balances keep rising, this is definitely a red flag and a sign of a potential cycle of debt on the horizon,” Friedmann warns. “If you've already maxed out one or more credit cards, this is even more problematic and can catalyze a significant financial downswing that's difficult to work your way back out of.” ”

Can’t qualify for credit cards at all? That’s not so good either!

“If credit card issuers have reason to believe you won't be able to repay borrowed money, you'll be rejected for most cards you try to qualify for,” Friedmann says. “This is especially problematic if you're trying to rebuild your credit during a difficult financial period. If you're continually rejected for different credit cards (other than ones for those with poor credit), this is definitely a sign you're stuck in a cycle of debt.”

Sign No 5: You’re not saving

If you don’t have savings, you’re always going to be one financial emergency away from being spun in the dreaded cycle of debt.

“If you seem to be spending more than you're making and don't have a stable savings fund, you may be stuck in a poor financial situation and cycle of debt,” Friedmann warns. “Savings for the future are extremely important, especially with a potential economic downturn on the horizon. A lot of us focus on payments for monthly bills and daily spending, but we often forget to save for the future—especially if we have stable sources of income.”

Tips to reverse the debt cycle

What can you do if you’ve read this article and now realize you might be in a cycle of debt or are at risk for getting stuck in one? Here’s some  advice.

Budget, budget, budget. “Try to sit down and budget your monthly expenses so that you can make the highest payments possible for each bill at a rate that you can afford. It will pay off in the long run and you won't find yourself stuck in a cycle of debt,” Friedmann says.

Think small to plan big. “To make long-term savings easier, try to start budgeting for the week and month ahead in smaller increments,” Friedmann adds. “You can build a 6-month emergency fund slowly for anything that might come up down the line. This will help you gain a sense of security and climb out of a negative financial cycle at the same time.”

Increase your credit card payments (if you have debt). If you have credit card debt, it’s always ideal to pay off the amount owed in full. If that’s not possible, make the highest monthly payments you can afford, Friedmann says. “If you find yourself owing money to one or more credit issuers, start making payments as soon as possible,” she says. “Call the agencies in question to see if there are any financial hardship options or different payment restructuring plans available.”

The obvious: spend less. Chad Rixse, Director of Financial Planning at Forefront Wealth Partners, urges taking a hard look at your spending habits. “Are you spending money out of necessity or is it frivolous? Look for ways you can reduce your monthly living expenses. Move to a cheaper location, eat meals at home, and take public transportation instead of owning a car. If you can't make more money, you can always spend less.”

Consider picking up a side hustle. “Drive Uber, do freelance work, or get a part-time job in a restaurant,” Rixse says. “Find ways to make some extra cash so you can put extra towards your debt.”

It might not be easy, but we hope you can break the debt cycle, so you can focus on more positive yielding cycles in the future.

Article contributors
Beverly Friedmann

Beverly Friedmann works as a Content Manager for the consumer website ReviewingThis (@ReviewingThis)—with a background in Sales and Marketing Management—and is from New York, NY.

Ryan Luke

Ryan Luke is a full-time police officer, but as a personal finance blogger, he has made it his personal mission to provide honest and easy-to-understand personal finance information. During his career, he has seen the devastation left behind by people who mismanage their finances. Due to this, he is dedicated to providing you the most up-to-date information to get out of debt and start building your future.

Chad Rixse

Before joining the Forefront Wealth Partners (@forefrontwealthpartners) family as the director of financial planning, Chad Rixse spent three years at Wells Fargo Advisors before going on to co-found an independent financial planning firm in Seattle, WA that specialized in working with tech industry employees. Chad is also a graduate of the College for Financial Planning, where he completed his Chartered Retirement Plans Specialist designation focusing on the design, installation, maintenance and administration of retirement plans.

Zachary Siegel

Zachary Siegel is a New York native and has always had a passion for helping others succeed by being transparent and boldly honest about everything. As a business lending expert, Zachary will secure the most suitable financing program for you and guide you on how to grow your business using other people’s money (debt) efficiently.

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