Debt can sneak up on people in many scenarios. Most people do not plan on falling deep into debt yet many find themselves in this position. Being aware of the various debt traps that can lead to this outcome might help you avoid falling into debt yourself. However, if the debt is overtaking your finances, you may want to talk to a Kingsport bankruptcy lawyer about how to escape debt through bankruptcy.
Types of Debt Traps
Falling into debt is often a cycle of spending money and then trying to pay off the debt by spending which requires more spending. This can become what feels like an endless cycle of spending money and owing more debt. A debt trap cycle happens when people spend more money than their income and borrow against credit to spend more.
You may find yourself in a debt trap cycle if you have to pay more debt than the overall income you make. This leads to making minimum monthly payments on the debt you owe or no payments at all when financial emergencies strike. What this does is exponentially increase the total debt you owe through interest rates. In other words, you are chasing instead of paying off your debt.
There are several types of debt traps that can lead to similar cycles. Credit cards come with late payment fees, annual fees, and other fees. Extra fees make it harder to pay off debt. Late payments for credit cards may increase the interest rate for the debt you owe significantly. Imagine struggling to make monthly payments on your credit card debt so much that you start missing payments only to have the interest rate go even higher.
Mortgage refinancing may sound like it could help but comes with the debt trap of adding more debt to your existing debt. Overdraft protection is not always free and often comes with fees that can increase the longer they are not paid off.
How to Escape Debt Traps
You can escape debt traps by making a rule to never borrow money. This is not always practical for everyone to never use a credit card or loan. The other option is to avoid borrowing more money than you know you can pay back within a reasonable amount of time.
For example, spending money blindly with a credit card without considering how much monthly income you have can quickly lead to the debt trap cycle. Tracking your monthly income and credit card spending through budgeting is a powerful protection method. This will reveal your limits on credit card spending.
Track your monthly expenses to know whether you can afford the debt you may accumulate from your next credit card purchase. Maintaining an emergency fund will help you continue to pay off your debt despite financial emergencies.
Bankruptcy Lawyer in Kingsport, TN
Overwhelming debt can make it seem like there is no way out. Do not hesitate to contact us at Tom Bible Law by dialing (423) 424-3116 for a consultation today to explore your options. Our legal team of Tennessee bankruptcy attorneys can help you escape crushing debt by choosing the best bankruptcy option for you. We serve clients throughout the Tennessee cities of Chattanooga, Kingsport, and Tullahoma.