The Debt Cycle

A few years ago my wife and I were completely debt free except our house. We had worked very hard to get to that point and our primary motivation at the time was to situate our finances to where she could stay home with our first child. We lived on a tight budget and put all of her paychecks (for more than a year) towards paying off school loans and car loans. It was a liberating feeling to finally pay our loans off. We were no longer slaves to the lenders except for a mortgage payment.

As time passed by and our first child arrived, we rationalized needing a different type of car that would suit our family better. So we found another used car and decided to take out a loan since we didn’t have the cash to pay for it. We didn’t feel great about the decision to go back into debt, but again we had rationalized it as a need.

Get Out of Debt

A few years later our other car became a maintenance nightmare. We had purchased it used and unfortunately just wound up with a lemon that seemed to have something go wrong with it every few months. As the months progressed the maintenance got more expensive. We really didn’t know what to do because we didn’t want another car payment, but didn’t feel like we could sell the car ourselves and leave someone else with the problems. So we ended up selling it to a mechanic and walked a way with a little bit of cash. And yes, we ended up with another car payment.

How many people end up in debt again after working so hard to be come debt free? I tend to think about it as the debt cycle:

  1. There is a plan built to get out of debt with a lot of motivation behind it.
  2. Action is taken to execute the plan.
  3. A debt is paid off.
  4. A temptation occurs or a need is rationalized because of some event.
  5. Debt is accumulated.
  6. Guilt or frustration sets in.
  7. Focus on goals and the underlying of motivation as to why you wanted to get out of debt occurs.
  8. Action is taken to execute the debt plan again (repeat step 1)

It’s easy to get caught up in the debt cycle. In hindsight, my wife and I didn’t make the wisest of decisions with our approach to cars. I’ve seen people in Money Map coaching situations do the same thing. They pay off a credit card and go right back out a few months later, rationalize a need and end up with the same or more debt than they previously had.

It’s easy to rationalize purchases and convince ourselves of needs at the expense of going into debt. You could argue that people who do this don’t “get it”. They don’t understand why they should avoid debt (debt as slavery) and therefore aren’t managing money wisely. On the other hand, we’re all human and we make mistakes in which we can gain a learning experience.

I’ve come to realize there will always be situations that, if we let them, can distract us from our goal to experience financial freedom.

There will always be a…

  • So called need so make sure you have your spending priorities in order
  • Financial storm, so make sure you have emergency savings
  • Material temptation so make sure you consider the impact to your goals
  • New stage of life that calls for new types of expenses so make sure you’re always planning ahead
  • Mistake, so learn not to be too hard on yourself. It’s the steps you take after the mistake that matter most

No matter your situation, whether you’ve made money mistakes or got yourself in debt, it’s important to remember we’re human. I’ve learned from these situations and certainly wouldn’t be writing this article today if I hadn’t had these experiences myself. So I don’t beat myself up too much because I know we’ll be debt free again soon (and you will too)!

What are your thoughts on the debt cycle?

About Jason Price

Jason Price is a family man saved by grace, passionate about faithful financial stewardship (1 Cor 4:2 NIV), soccer and the Pacific sun.