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How a debt spiral draws you in

On Behalf of | Feb 12, 2023 | Bankruptcy

People who are considering bankruptcy have sometimes found themselves in a debt spiral. They never intended to be here, but it seems like their situation is just continuing to get worse. They are still trying to make their payments on time and to make wise financial decisions, but they just keep getting further and further in debt.

It can be very difficult to get out of the spiral without taking drastic action, such as declaring bankruptcy to eliminate some of the debt. This can allow you to actually get a fresh financial start and put an end to a spiral that you would never have gotten out of on your own. But why does something like this happen in the first place?

The issue with interest payments

What often occurs is that people who are making payments on their debt or not paying off the full balance. They are just making the minimum payments, such as paying $50 a month toward their credit card debt.

But the minimum payment only keeps you from getting extra fees if you didn’t pay anything. You do still have to pay the interest on the remaining balance. In many cases, the interest rates are very high, such as credit cards with an 18% interest rate. The total amount of interest that is added to the account may be more than the minimum payment that the person is making. So, despite the fact that they are actively paying down that debt every month, the total balance on their account simply grows larger and larger.

If you are in this position, it’s very important to know about your legal options before things get worse.