The Debt Spiral and How to Climb Back Out

Debt is an insidious thing. It creeps up on us, often so slowly that we barely notice we are in debt until it’s too late. A few profligate spending sprees, an unexpected bill or two and some poor decisions are all it takes to saddle us with more debt than we can handle.

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There are many reasons why we fall into debt. Sometimes, events out of our control happen and there is very little we can do about it other than deal with the consequences, but the main reasons why people end up indebted are:

Poor Money Management

If you spend more than you earn, it won’t be long before you spiral into debt. Money management skills are not passed down in our DNA – they are something we need to learn. People who are good at managing their money often learn from their parents, and vice versa. If your parents spent money without worrying about the consequences, you will probably develop similar habits.

Life Events

Sometimes, life throws us under the bus. A costly divorce, unemployment, the death of a spouse – all of these things are unexpected, unwanted, and generally catastrophic for our finances.

Bad Luck

Cybercrime and identity theft are rampant. Identity theft is up by 57% on last year and in the US, 13.1 million people lost $15 billion in 2015. Cyber criminals are way ahead of law enforcement. They use social media to hunt, stealing personal information to put together the pieces of a victim’s identity. Once a fraudster has your personal details, they can take out loans and credit cards in your name, running up huge amounts of debt that you are ultimately liable for.

The Rising Level of Debt

The level of personal debt in the UK hit £1.516 trillion at the end of 2016 and the average UK household is £56,000 in debt. UK credit card debt is currently around £67 billion. In the US, the average household owes $134,000 and credit card debt is $779 billion.

In both countries, debt has grown over the last decade, with the cost of living rising faster than incomes. In the US, medical costs have soared by 57% alone. It’s now more expensive than ever to buy essentials such as food, fuel, housing and heat.

Getting out of debt isn’t easy, but it can be done. In the first instance, it’s sensible to create a manageable budget that takes into account your income and expenditure. Concentrate on paying off debt first, as this is costing you the most. Once you have paid down your debt, look at ways to increase your earnings, your savings, and ultimately, your retirement nest egg.

Making Your Money Work Harder

The best way to stay out of debt is to boost your income and make your money work harder. This is easier said than done right now, as interest rates are low and there is very little scope for enjoying a steady income from a regular savings account. However, there are other ways to make money from savings, and one of the more interesting involves studying macroeconomics.

Are you the type of person who enjoys keeping a close eye on the financial markets? Do you have sites like Oanda and Investopedia bookmarked in your browser? If so, macroeconomics is for you.

Use Macroeconomics to Make Money

In simple terms, macroeconomics is the analysis of immediate economy movements with the aim of using that information to make financial gains. If you understand the concepts of quantitive easing, GDP, monetary policy, inflation, and how these factors play out in the financial markets, you are in a strong position to invest in stocks, shares, and forex, with a view to making money.

Of course, it goes without saying that you should never invest what you can’t afford to lose, as this is the type of reckless behaviour that leads to debt, but if you have some spare income and a head for figures, macroeconomics is an exciting way to make money fast.

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