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The Debt Spiral: What It Is and How to Escape It

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: 5 min
Updated on April 17, 2024
man with beard and glasses looking through a magnifying glass to find out what the debt spiral is
If you take out new debt to cover costs incurred by all the payments you have to make on your old debt, you just might be in a debt spiral.

Finance is often unfair. The richer you are, the easier it could be to hold on to your money. If you struggle with debt and budgeting, the worse those issues may become. One late payment or an unexpected expense could cause you to fall behind on your financial obligations, and fall into a debt spiral.

So what is the debt spiral, how can it trap you, and how can you escape it?

Read on to find out.

The debt spiral: What is it?

“A debt spiral is when an individual, company, or even country falls into major debt over time,” explained Monica Eaton-Cardone, owner & COO of Chargebacks911. “The reason behind this is simply because individuals don't know how to use their credit cards properly. You begin to miss payments and the number of late payment fees you have increased.

“You're eventually in debt and decide to borrow money, but then you aren't able to pay off the money you borrowed and get a little more behind. Ultimately, the whole thing snowballs on you as your interest rates get higher and higher. You're then stuck with multiple loads of debt. The more you try to catch up, the worse it gets and the more behind you get.”

It is not always obvious that you’ve entered a debt spiral.

“You may not even realize at first that you’re on your way into a debt spiral,” warned Leslie H. Tayne Esq., Founder and Head Attorney at Tayne Law Group. “It can start as simply as not paying off your full credit card balance one month and then spending more on top of it the following month.

"Before you know it, your balance is continuing to increase each month as interest accumulates and your minimum payment is not making a dent. If you continue to be unable to make significant payments, it will just continue to grow and grow, making it even more difficult to break free of the spiral.”

Now how can you escape it?

Recognize the spiral.

You can’t fix a problem until you realize its existence.

“The first step to getting out of a debt spiral is recognizing that this is the problem,” offered Tayne. “One of the reasons debt spirals can get out of control is from a sense of denial or not recognizing how serious the problem is. While it can be difficult to admit that your finances have gotten out of control, this is the first step to getting yourself back on track.”

Make a plan.

If you find yourself in a debt spiral, you will need to make some changes, and that means making a plan.

“Imagine you’ve just started college,” suggested Ben Watson, CPA, virtual CFO of and founder of Fiscal Fluency. “But instead of carefully choosing courses, you take a few random classes each semester and hope you’ll have the requirements to graduate in four years.

“Newsflash: you won’t. Now apply that concept to your finances. Without a blueprint for your income and spending, your finances will consistently teeter on collapse. Also, people graduate from college early all the time. Based on the amount of time, effort, and earning potential, it’s possible you can pay off the credit cards in a shorter time than you even realize.”

You might think you’ve eliminated everything you can from your budget, but it could be worth taking another look.

“It’s important to take a good, long look at your finances,” urged Tayne. “Review your budget and see if you can find areas where you can cut back or downsize to free up some funds to make more sizable payments on your debt. If there aren’t any places where you can cut back, many times this signals a cash flow problem.

"Consider ways to increase your income, whether it’s taking more hours at your current job, looking for different opportunities, or taking on a side job. Use your extra income to make payments on your debt.”

Seek help.

It might be embarrassing to admit you’re stuck in a debt spiral, but seeking help could be  necessary to get out of it.

“Finances aren’t just pushing numbers around, there are a lot of emotions attached to money,” Watson explained. “Reaching out to a financial coach or some sort of accountability partner can greatly increase your chances of successfully navigating the hurdles you’re facing. One of the main things they provide is helping you refocus, making a plan, and then gaining control as you move forward with the plan.”

If the situation is dire enough, you may need to look into bankruptcy options.

Preventing future debt cycles.

Even if you claw your way out of debt, not having an emergency fund means a surprise expense could throw you right back in.

“Don’t worry about putting together 6-12 months worth of expenses,” began Watson, “but having even $500-$1,000 in a savings account set aside for legitimate emergencies can save a lot of lost sleep and stress. If you’re starting from zero cash, spend a weekend or two cleaning out the attic, garage, and spare room and sell things you don’t need anymore.

“Go full Marie Kondo on your place and list items on Facebook Marketplace and eBay, or have a garage sale. Anything you haven’t even thought about for more than 12 months should be considered as potential cash. There are tons of simple ideas to make a quick buck on the internet, find one that fits you and go for it.”

The debt spiral is not fun. Hopefully, the advice from these seasoned professionals will help you avoid or escape it.

Article contributors
Monica Eaton Cardone

Monica Eaton-Cardone is the owner, co-founder, and COO of Chargebacks911 (@chargebacks911), the first global company dedicated to preventing chargeback fraud, eliminating cyber-shoplifting and safeguarding the “eCommerce experience” for retailers, banks, buyers and sellers.  Chargebacks911 manages billions of online transactions annually and has helped its clients recover over $1 billion in disputed revenue. Monica is also the author of Chargebacks for Dummies (published in 2018), part of the best-selling instructional/reference book series.

Leslie Tayne

Leslie H. Tayne, Esq. (@LeslieHTayneEsq) has nearly 20 years of experience in the practice area of consumer and business financial debt-related services. Leslie is the founder and head attorney at Tayne Law Group (@taynelawgroup), which specializes in debt relief.

Ben Watson

Ben Watson, CPA is the virtual CFO of (@DollarSprout) and founder of Fiscal Fluency, a personal finance and business coaching company. He equips small businesses and entrepreneurs with the skills and accountability to manage their businesses with confidence rather than fear.

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