If you have ever borrowed money to make payments on another debt, you're in trouble. Even if you aren't at that stage quite yet, if you consistently spend more than you earn, you're headed down the nasty road of a debt cycle. Debt cycles don't solve themselves, so you're going to need to buckle down and make some changes. The sooner you start, the less debt you'll have to deal with.
Track Your Spending
Debt happens when you spend more than you earn, and in most cases, you don't know where all the money is going. Gathering data is one of the most helpful ways to accurately assess your financial situation so you can make a plan to fix it. Spend a month tracking every penny of your spending, from your rent or mortgage payment to the snacks you buy at a vending machine.
Know What You Owe
To stop the cycle of debt, you're going to have to pay down the debt that you already have. The best way to do this is to work the payments into your monthly budget, but you can't do that if you don't know what the payments are. Go through all of your most recent statements and list the total amount owed, monthly payment and interest rate on each of your debts. Seeing the numbers may also provide a helpful reality check.
Develop a Reasonable Budget
The hardest part of breaking the debt cycle is creating a balanced budget to use going forward. Sit down together with your spending log, debt list and pay stubs. Subtract the essential payments, like housing, transportation, insurance and minimum debt payments from your paychecks. Also set aside a little money every month for a savings account you can dip into for emergencies so you don't have to turn to credit cards. Allocate the remaining money among other categories, using your spending list as a guide to see where you usually like to spend your money.
Operate on Cash
Now that you have a balanced budget, the trick is sticking to it. The best way to do this is to do all of your spending with cash. Once the money runs out, you stop spending. Seeing the money dwindle as the days go by is a helpful reminder that you're done with your days of accumulating debt. Handing over the cash every time you make a purchase also helps you assess whether this is really how you want to be using your limited funds.