Debts: Double-Edged Sword That Can Lead to a Debt Cycle - Essay Sample

Introduction

Debts are termed as double-edged sword since it can be essential when invested in the future, but one has to pay off the debt to develop a net worth. Whenever an individual fails to pay off the debt for any reason, it results in a debt cycle, which is challenging to get out. A debt cycle is the continual borrowing leading to increasing liabilities, costs, and future default. Individuals who spend more than what they bring in leads to debts. The interest costs which are added on loans result in a monthly expense, thus making the debts to increase faster. Also, people might take loans to either pay-off the existing loans or keep up with the minimum payments. Debt consolidation allows one to spend less money the loan interests, hence simplifying the finances. For example, young individuals in society increase their chances of getting into debt after pursuing higher education. Therefore, due to the increased number of persons who suffer because of debts, this paper will discuss the steps regarding how people fall into debts.

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The student loan is a significant contributor to debt accumulation in one's life. A student loan allows learners to access books, tuition, and other living expenses. Having an opportunity to complete college and earn more than individuals with high school education causes one to incur debts. Also, deficits increase whenever the student accesses a loan as a young adult since they do not think of the loan repayments and the interests. Therefore, students can minimize student loan debts by either applying for grants or working part-time.

The income shocks are among the significant causes of debts among the societal members. The income shocks in most families tips away from the feeling of managing a specific debt to a sense of beginning to move out of debt control. Most parents in the current society possess little resilience that is required to cope with income shocks. The income shocks appear after parents experience expenditure pressure due to insufficient savings for paying for the unplanned costs. Also, parents fail to adjust their wages to deal with the income shock due to the children's requirements. Children demand more significant household expenditure, thus making it challenging for parents to alter their behavior of maximizing income. Therefore, due to increased income shocks, one tends to borrow more, thus increasing their debts.

People who fail to either set or adhere to budgets tend to suffer due to an increase in debts. Failure to set the budget makes one not to realize if they have sufficient money for making their ends meet. Also, not fixing the monthly budgets get people into a red zone every month, thus ending up paying extra annoying fees. Individuals who make budgets and do not stick by it end up in a debt cycle. Therefore, if a person is teamed with an appropriate savings plan, creating a budget can help one out of the emergency and hard situations.

Therefore, people fall into debts, either knowingly or unknowingly. After the debts accumulate, they affect the lives of people negatively, thus creating pressures. Deficits among individuals arise from the students' loans, failure to adhere, and set budgets and development of income shocks. For one to manage the increased debts in their lives, they need to do budget planning and minimize their expenditure rate.