Stop The Debt Cycle: Why Solving The Root Cause Is Essential To Breaking Free

It's a common story: someone gets out of debt, only to find themselves right back in it a few months or years later. This cycle can be frustrating and demoralizing, but the good news is that it can be avoided. If you want to stay out of debt for good, you need to figure out what got you into debt in the first place and address those issues.

Identifying the root cause of your debt is crucial to creating a sustainable and healthy financial future. Here are some common root causes of debt:

1.     Overspending - Many people accumulate debt because they overspend. They may live beyond their means, or have trouble controlling their impulses when it comes to shopping or other discretionary spending like eating out, and don’t have a system to track how much they can spend without causing an issue.

2.     Lack of income - If you're not earning enough money to cover your expenses, you may turn to credit cards or loans to make ends meet. This can lead to an endless cycle of debt as you struggle to keep up with increasing interest rates and higher minimum payments.

3.     Emergencies – Emergencies are unavoidable, such as in the case of unexpected medical bills, car repairs, a vet bill for a sick pet or other unforeseen events. If you don't have an emergency fund to cover these expenses, you may have to turn to credit cards or loans to pay for them.

4.     Life changes - Major life changes such as divorce, job loss, a new home or a new baby can also lead to debt. These changes can disrupt your financial stability and make it difficult to keep up with expenses.

Once you've identified the root cause of your debt, you can take steps to address it. Here are some strategies to consider:

1.     Spend with intention - Create a spending plan.  This is different and easier than a budget, and easier to stick with.  A spending plan can help you avoid overspending and ensure that you have enough money to cover your bills and be able to save for your future, without having to track every expense or give up all the fun things that make you happy..

2.     Increase your income - Make sure that you have a good handle on your income and expenses. If your income is not sufficient to cover your basic needs, monthly spending money and money for “future you”, consider ways to increase your income, such as getting a side job, negotiating a raise at work, or changing jobs. This can help you pay off your debt faster and ensure that you not only have money for your necessary expenses but also money for fun as well, which will help you avoid accumulating more debt in the future.

3.     Build an emergency fund - Start building an emergency fund to cover unexpected expenses. Even if you can only set aside $50 a month right now, just start.  Aim to save three to six months' worth of living expenses in a separate savings account away from your regular bank so that you’re not tempted to dip into it.

4.     Plan for life changes - If you know that a major life change is on the horizon, such as a job change, a new home, or a new baby, start planning for it as soon as possible. Build up your savings and create a plan for how you'll handle the change. A good exercise is to do a budget with the added expenses included (and a lower amount of income if that’s a factor in the change) and live on the new budget before pulling the trigger. It’s better to delay a big money item like a new home or baby and be prepared for it financially than to go into debt once the event happens.

Getting out of debt is a great achievement, but it's only the beginning. To stay out of debt for good, you need to identify what got you into debt in the first place and take steps to prevent it from happening again. Stay disciplined, avoid old habits, and build up an emergency fund to help you weather unexpected life events. With these strategies in place, you can stay debt-free - forever.