8 Strategies for Breaking the Debt Cycle (Part 2)

This is a continuation of Breaking the Debt Cycle (Part 1) from last week.

Balance Transfer Cards and Personal Loans

Balance transfer cards and personal loans both are potentially useful tools for lowering your interest rate and streamlining your monthly payments. Balance transfer cards typically offer a 0% APR for a limited period of time. They allow you to move the balance from a higher interest card onto this new lower interest one. This gives you a certain period of time to pay down your debt without worrying about the interest you’re paying.

Personal loans are particularly helpful if you’re juggling paying off multiple credit cards. You can use a personal loan to pay off your current cards and then have just one monthly payment, also typically at a lower interest rate. 

The potential pitfall of these strategies is that they both free up credit so if you aren’t careful, you can end up with even higher balances and larger monthly debt payments. Before pursuing either option, make sure to give yourself some time to get used to a new spending plan that is sustainable for your income. Knowing yourself and your habits is important!

Increase your Income

If you feel like you don’t have enough money at the end of the month, it might be true! This doesn’t necessarily mean that you are “bad at money,” it could just mean that you aren’t bringing in enough income. 

Many of us treat our earning ability as something static. We may not feel like we have control over it but that’s not entirely true. You may be able to increase your income by getting a promotion, switching jobs, getting a second job, or starting a side hustle.

When you do secure extra income, make sure it’s going to help your reach your debt repayment goals, rather than lifestyle inflation.

Reduce your Expenses

On the other side of the equation, we have expenses. Cutting down on your expenses (even temporarily) will create space in your budget for saving or paying off debt. Start by identifying and totaling your fixed expenses (i.e. bills) including your debt minimum payments. How much do you have left to spend on your day-to-day expenses? 

If it’s less than about $860 per month and you live in a high cost-of-living area, or $530 per month for a low cost-of-living area, you will likely have trouble breaking even. This means you should take a look at your fixed expenses and see if there is anything you can reduce or eliminate. Remember, the goal is for this to be temporary! You can always add expenses back in once you’ve broken out of the debt cycle.

Don’t Be Afraid to Consider Bankruptcy

Bankruptcy has a bad reputation, but it can be a life-changing tool, especially if your debt-to-income ratio is 50% or higher. Bankruptcy offers protection from some of the scariest potential consequences of defaulting on your debt including collection calls, litigation, liens on your property, and wage garnishment. Even more than that, bankruptcy can eliminate your consumer debt, offer a clean slate, and free up room in your budget to cover your day-to-day expenses and work towards building the life you want. 

If you think bankruptcy might be for you but you’re hesitant to start the process, listening to other people’s stories about going through it can help ease your concerns:

While bankruptcy does not need to be scary, it should be taken seriously. You can only declare bankruptcy every ten years, so having a plan of action for once the debt is clear is incredibly important! 

There is no single path to breaking the debt cycle (although I’d argue that an emergency fund should be part of everyone’s path). If you need help figuring out which strategies would work best for you, you can talk to a financial trainer through our Trainer on Demand service.

8 Strategies for Breaking the Debt Cycle (Part 2) is written by The Financial Gym Team for

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