The Debt Cycle: How It Comes by and How to Get Out

Do you feel like it's impossible to be ahead of your financial obligations? A paycheck-to-paycheck lifestyle where you make minimum payments could indicate your need to escape the debt cycle. Read on to learn more.
Do you feel like it's impossible to be ahead of your financial obligations? A paycheck-to-paycheck lifestyle where you make minimum payments could indicate your need to escape the debt cycle. Read on to learn more.

Our world is bursting with numerous delightful cycles. Let’s check out some, shall we?

Of course, there’s the bicycle, a reliable mode of transport that’s great for near full-body exercise and doesn’t release harmful emissions. There’s also the unicycle, which offers the other benefits of a bicycle, but is only used by professionals.

If you love life, you must also appreciate the Krebs cycle, a critical cellular respiration process.

But unfortunately, not every cycle is good for our well-being or health. For instance, you don’t want to be interred in the dreaded debt cycle, where you get behind on your financial obligations before falling further into debt. You may not even realize the problem until it’s too late, so we’ve created this detailed guide to help you redeem yourself.

What Is the Debt Cycle?

A debt cycle refers to continual borrowing that ultimately causes higher debt, additional borrowing costs, and eventual default of your financial obligation. Many people go into debt because they spend more than they bring in.

At some point, your cost of borrowing (like interest rates) can turn into a massive monthly expense, increasing your debt even more quickly.

You may be forced to take out other loans to pay off your current obligations or just to stay ahead of the necessary minimum payments in what is called debt consolidation. But if you’re taking a loan to facilitate your current consumption, the situation can become dicey.

How Do People Get Trapped in Cycles of Debt?

For many people, sliding into debt begins right from their mobile devices. Fuliza, Safaricom’s mobile lending facility, currently has over 6.9 million borrowers in its catalog. Between 2021 and 2022, disbursements from the overdraft service increased from Ksh.351.2 billion to Ksh.502.6 billion. This shows just how much people are into mobile borrowing.

Besides Fuliza, mobile lending apps like Okash and Tala have entangled millions of Kenyan consumers in debt. These platforms sometimes have to use unorthodox methods to recover their loans, indicating numerous default cases.

Numerous Kenyans also struggle with education loans, considering the hardship of paying for technical training or college education. That’s why HELB (Higher Education Loans Board) loans continue to compromise the personal budgets of many people. Most people begin accumulating debts when they don’t have sufficient personal income to make a single repayment.  

You may also incur additional debts after school. For instance, you may apply for an asset finance loan or mortgage. With time, the income meant to repay the loan becomes overwhelming, forcing some to take out another loan to consolidate the debt. But while this may seem like an excellent idea, it has made many people go deeper into debt.

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A few rounds of consolidation could mean even less income; hence the inability to pay other expenses on time. Eventually, this could damage your credit ratings, restrict your cash flow, and even cause bankruptcy. As such, you must take the necessary remediation steps whenever you notice signs of consistent debt.

Signs That You’re Stuck in the Debt Cycle

The first step to getting out of debt is to acknowledge that you have a financial problem that you must address. Check out these telltale signs of debt problems:

  • Living paycheck-to-paycheck – You may not be loaded down with a current debt cycle, but if you live paycheck to paycheck, there’s a chance you could be in the early stages of the cycle. A single significant expense or unexpected incident can rev the cycle into full gear.
  • Borrowing to meet regular expenses – Taking loans to address standard expenses like house rent, school fees, clothing, or grocery purchases is a sign that you’re already falling into the trap.
  • You can only afford minimum monthly payments – You may still be able to pay your bills. But you could face an impending or existing debt if you’re only making minimum payments on your monthly expenses or have difficulty meeting minimum fee requirements.
  • A bad debt-to-income ratio – Basically, the debt cycle occurs when your financial obligations eclipse your income.
  • You’re not saving – If you lack a stable savings fund, you’ll always be one emergency away from landing in the debt cycle.

Once you notice any or several of these signs in your financial space, it could be time to get out of the impending cycle before it’s too late. But how do you get out of a debt cycle? Read on to find out.

How to Get Out of a Debt Trap

Escaping the debt spiral begins with accepting that your financial obligations are overpowering you. No need to judge yourself – the past is the past. You’ll need to take a genuine perspective of your current situation and then take action.

So, what are the seven steps for getting out of debt? Let’s find out!

Understand Your Finances

You should know your current financial position, including your monthly income and where you spend the money. 


Tracking your earnings and spending for a month or two will give you helpful information on exactly where you stand. You can do this by maintaining records of your transitions electronically, writing in a notepad, or creating a spreadsheet or text document with your list of expenses.

Create A Spending Plan

After determining what you can afford and how much you’ve been spending, create a budget you can afford. Also, prioritize actual needs before looking at other expenses. 

You may need to pay yourself and budget for future goals, but clearing your debt could be more urgent. So make those unpleasant changes and find ways to cut your spending. 

Stop Borrowing On Your Phone

Mobile lending services like Fuliza aren’t necessarily bad, but they can easily land you into a short- or long-term debt cycle. Most of these services and apps have high-interest loans, forcing you to pay more for any loan you take. So do whatever it takes to avoid them, including uninstalling the applications and unsubscribing from the services.    

Gradually Change Your Habits 

You can easily achieve the “big wins” like canceling expensive internet services or moving to a cheaper house. But even the small changes like reducing expenditures that get you into debt is a great way to save yourself from the grip of debt. Start small by carrying your lunch to work and preparing your coffee at home.

Lower Your Borrowing Costs

Additional loans are risky, but the last one could rescue you from the debt spiral. If you already have a loan charging high interest, you can borrow the right loan with a fairer interest rate and then pay off the first one to reduce the borrowing cost. But this step requires discipline, or you could have an even bigger debt problem.

Grow Your Income  

Depending on your debt amount, a side hustle or part-time work opportunity may be in order, as you can direct your additional income into paying the debt. This will accelerate your payments and gradually get you off the debt hole.

Create A Practical Debt Repayment Strategy

After all the above steps, you must develop a practical approach to clearing your debt. The two primary methods of clearing debts are:

  • Avalanche method – This loan repayment strategy requires you to clear your debts starting with the loan with the highest interest rate as you also address the minimum payments.
  • Snowball method – This approach offers the high satisfaction level you need to stay on track. You’ll begin with the smallest balances and work up to the other larger loans.
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Your method should align with your goals and income level. So choose one that’s comfortable for you.

How to Avoid the Debt Cycle

It’s easier to avoid the debt problem in the first place than to dig yourself out of the hole. Whenever you’ve got a solid financial ground, stay disciplined and heed the following best practices:

  • Live below your means – Affording an item doesn’t mean you should buy it. Living below your means can reduce stress whenever life throws you a curveball, setting you up for financial success.
  • Don’t make the optimum purchases – Lenders don’t have your best interest at heart; hence can the maximum debt level after determining your debt-to-income ratio. Always ensure you spend less.
  • Avoid quick, unnecessary loans – Unless you can pay off the debt monthly, you shouldn’t take any loans from mobile service providers and apps. Instead, create a budget and spend in cash to ensure comfortable spending.
  • Save for emergencies – Most people fall into the debt spiral due to unexpected circumstances, not daily spending. In most cases, you can escape debt by saving up for unforeseen expenses via an emergency fund that can cater to your living expenses for up to three to six months.

Parting Shot

As you enter the swing of sticking to your budget and clearing off your outstanding loans, you’ll begin to realize the positive impact this freedom can have on your mind. Knowing that you’re committed to changing your financial state for the better will increase your commitment to the course.

Once your balance begins to shrink, you can be flexible enough to grow your savings. This will not only release you from the debt cycle but also prevent you from relying on lenders.


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