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Personal Finance

This is the biggest mistake people make when trying to break the debt cycle

Our subconscious habits can often present a problem when it comes to staying out of debt for good.

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JGI/Jamie Grill
Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

Paying down debt is easier said than done. Some people may only be able to pay the minimum required amount each month — this means they're barely making a dent in their balance and it continues to accrue interest, which makes it even harder to completely pay off the debt.

For others, though, they might make considerable efforts to achieve a lower debt balance — but then they fall back into debt and their balance increases. Then, they're left to go through the motions of lowering their balance all over again.

These experiences can be frustrating and exhausting — and may leave many people feeling like they're never able to break the debt cycle despite positive habits like making monthly payments on time.

According to Paco de Leon, author of "Finance for the People: Getting A Grip On Your Finances", our subconscious habits can often present a problem when it comes to staying out of debt for good. And not recognizing and dealing with this can keep us trapped in that cycle of paying down debt only to incur it all over again.

"It's important to note that everyone will have their own personal situation that ends up being the reason why their debt cycle perpetuates, and it's everyone's responsibility to figure out what's going on," de Leon says. "For some, it's because they don't earn enough money and there are a lot of circumstances that overpower all their efforts. And there are some folks who are dealing with trauma they might be unaware of."

For instance, de Leon shares a story about a woman who grew up in a household where her parents were always fighting. This stressed her out, and to deal with that stress, she would go online and do some shopping. So even as an adult she found that whenever she got really stressed she turned to retail therapy, and used shopping to ease her anxiety.

For someone in this situation who has racked up a lot of credit card debt by shopping, it wouldn't matter much in the long term if they increased their salary or switched jobs to pay off their debt; their subconscious needing to go shopping whenever they're stressed will keep them overspending on their credit card no matter how much of the balance they pay off, and no matter how much they earn.

Instead, someone in this situation would need to find a different way of coping with their stress that doesn't involve shopping. By finding a different way to deal with stress, they may rely on retail therapy less to alleviate those feelings. And as a result of spending less, their credit card balance might stop increasing and they'll be able to pay it off sooner.

Getting to the bottom of your subconscious habits around debt

"When people don't understand the circumstances that got them into debt, they fall victim to those circumstances again," de Leon explains.

She recommends journaling as a great way to start to uncover some of your beliefs and habits around the way you spend money and use debt. Hiring a coach and also discussing debt and trauma with family members and loved ones can help you figure out how some of your habits may have formed and what you may need to do to overcome them.

And while tracking your spending can often feel daunting or stressful, it can be an effective way of getting a clear picture of where your money goes. Apps like Mint or You Need A Budget (YNAB for short) connect to your bank account and credit cards so they can automatically track and categorize your spending for you — in other words, you won't need to meticulously comb through every single bank statement to know where your money goes. Tracking your spending can make it easier to connect the dots when you notice higher than usual spending to pinpoint what's been triggering it.

If you think carrying considerable debt has been the source of much of your financial stress, there are some ways you might seek to minimize your balances and start to feel more in control. Balance transfer credit cards, for example — like the Citi Simplicity® Card or the U.S. Bank Visa® Platinum Card — let you transfer the balance of a credit card to a new card and pay off as much as you can with an introductory no-interest offer. This can be a game changer for people who feel that their credit card interest charges eat into their monthly payment and prevent them from paying down their balance fast enough.

But if you have different types of debt that feel like they're getting out of control, you can use a personal loan to consolidate them all into one neat monthly payment, often at a lower interest rate. So, let's say you take out a loan like the LightStream Personal Loan or the SoFi Personal Loan: You'll apply for a specific amount that's enough to cover the total of all your debts and the lender will send a specified amount to each of your creditors to pay off those debts. Then, you'll only be responsible for paying back the personal loan in the form of fixed, equal monthly payments plus interest. This can sometimes be more doable for those who feel like managing multiple monthly payments to multiple lenders is overwhelming.

There are also other more personalized ways you can get help when it comes to the debt you carry. A certified financial planner (CFP) might also be able to analyze your spending habits and identify patterns or areas for improvement you may not have considered yet. You can use Zoe Financial to find independent and fiduciary CFPs who can assist you with specific concerns around debt.

Bottom line

Issues around debt are often more than not earning enough money to pay off your balance each month. In some cases, habits we've subconsciously formed are at the root of why our debt cycle persists. But over time, journaling, discussing your debt and trauma, utilizing financial products available and seeking help from a financial professional can help us understand our circumstances on a deeper level.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.