Cycling is healthy for your health and you continue for your lifetime. But, are all types of cycles good for you? While the literal cycle is good, there is a cycle that everyone wants to get rid of. Which cycle is it? A debt cycle. If a person sticks in a debt cycle it becomes very hard to reach the goal of financial freedom.

The reason is that the debt cycle mostly turns into a route that is nothing but a loop going forever. But by installing the right checkpoints in your financial life, you can get yourself out of this cycle and achieve financial freedom. How? Let's understand!

1.   Make an achievable budget

To begin with, you should be aware of what you are earning and what your fixed expenses are. There is no doubt that everyone either gets a fixed salary or knows the expected earnings in the case of business or freelancing. Similarly, there are some fixed expenses as well like rent, bills, household expenses, loan EMIs Etc.

If you keep an awareness about where your money has to go, it'll provide you control over your money. Once you find out what you are left with after mandatory expenses, you can spend some of the money on increasing the loan repayment amount every month. Hence, you'll not spend on unnecessary things and your loan will settle early too.

Pro tip - Consider paying extra for those debts that have high-interest rates.

2.   Start an emergency fund

Not adding new debts is as important as getting rid of the previous ones. While you can cut on your miscellaneous expenses, emergencies can't be ignored, right? So, you should start an emergency fund and also keep it on the list of priorities. It will help you in case of any emergency and you'll be able to handle an emergency without taking a new loan. Also, an emergency fund can be a lifesaver too as loans aren't as liquid as your own money.

3.   Needs and Wants

We have already learned about the needs above but there is a problem. Commonly, some of your needs aren't needs but your “wants” in disguise. Identifying them is very important otherwise your budget will turn out to be faulty and unrealistic. If you own a credit card or credit line, then there are high chances of this disguised buddy sitting in your budget.

Pro tip -  Imagine your life before and after the expenses. If you think there'll be trouble if you don't spend on it then it's a need otherwise it's not.

The Debt Stats

The picture of this debt cycle is much bigger than it looks. Until you keep looking at your personal loans personally it may seem like there is no problem. But have a look at these stats:

1. More than 50% of lending tree users took a loan in 2023 to pay off their other loans and liabilities.
2. The total disbursed amount under unsecured personal loans in 2017 was 4.6 lakh crores which now has increased to Rs 13.32 lakh crores last year, according to Care Ratings.
3. In India, the unsecured loan demands increased by 6.6 times in ten years.

These stats are proof that the debt demand is only increasing. So, in this debt-centric world, you'll have to focus to step out of your debt cycle and become financially free.