“It’s the same story every month. I promise myself that I’m going to make a big dent in my credit card bill, yet within two weeks after payday, I’m forced to swipe the card to buy groceries. This month the car required major repairs and I just didn’t have the money to deal with it. It took me a long time to pay down $40,000 off my debt, but it disappeared in an instant after purchasing car parts. I’m sick and tired of owing this money; I feel like all I do is work hard to pay interest to the bank. When am I ever going to get rid of this debt?”

This heartfelt cry of a client who is stuck in a debt quicksand could easily have been echoed by thousands of concerned consumers who are similarly mired in a vicious cycle of borrowing to survive. Despite their strong desire to pay off their obligations, their financial reality makes it challenging to break free of the chains of debt.

The high level of consumer debt is one of the most pervasive economic problems in Jamaica today. It’s a problem that faces high-income professionals and lower-income labourers, retirees and recent graduates alike; our propensity for borrowing cuts across all levels of the society.

Although many people are fed up with their debt situation, they are even more frustrated because they can’t figure out how to get out of it. The first step in creating a debt reduction plan is to determine the reasons why it was necessary to borrow in the first place.

Debt by deficit

With the rising cost of living and stagnating income levels, most consumers are simply not earning enough to meet their spending requirements. When faced with budget shortfalls, many people immediately think, “I need to borrow some money.” While having access to a quick loan might be seen as the answer to their deficit, this process actually creates a dependency on debt that is hard to break.

Let’s say you need an extra $1,000 to pay your bills. Since it’s such a small amount, you choose to borrow this money from a friend, and you think that your problem is solved. Since you haven’t addressed the underlying reason for your shortfall, next month your budget is still out by $1,000. However, now your shortfall is even greater, as you have to find another $1,000 to repay your loan.

You decide to borrow once again to pay the $2,000 that is not covered by your earnings. However, in the following month, your shortfall actually increases to $3,000. This cycle will continue until you are unable to access any more credit and most of your income is being channelled into loan repayments. At this point, getting out of debt is an extremely difficult, but not impossible task.

Debt by desire

While some persons are crippled by insufficient income, others get trapped by trying to attain lifestyles that are way above their means. Many consumers have got lost in a maze of debt because of their desire for the finer things in life and their inability to wait for the natural course of time to acquire them.

Their attitude is that once they can afford to make the monthly payments, then they have no problem in using the convenience of credit to maintain an inflated standard of living.

Eventually they become addicted to debt, and as Proverbs 22:7 states, “…the borrower is a servant to the lender.”

You should realise that the interest you pay to the financial institutions is really your potential wealth being transferred over to them. To fully grasp how much you have sacrificed for your debt habit, run a tally of the interest you have paid on credit cards, payroll advances and hire purchase loans over the years, and think of the assets that you could have bought with this money.

Debt by default

Sometimes, unforeseen situations will leave people with no other option but to borrow money. Job losses, medical emergencies, natural disasters or even death can force even the most disciplined spender to turn to debt to survive.

One of the main reasons why financial advisors always encourage persons to focus on saving early in life is to build up an emergency fund that will give them the ability to deal with life’s unpleasant eventualities.

Whatever the root cause of your indebtedness, you have to try to regain a balance in your budget by becoming aware of your expenses and making adjustments to your spending habits in order to stay within your income. If you have cut back on costs as much as possible and you still require more money to meet your basic needs, then the only answer is to look for ways to earn more.

This is where the challenge lies for many persons, as they find it difficult to think of practical ideas to create extra income. Look out for future columns which will offer simple ways to increase your earnings.

Cherryl is a financial consultant and money coach, and founder of Financially S.M.A.R.T. Services; she is currently writing her first book, “The 3 Ms of Money.” Get free financial tools at www.financiallysmartonline.com and practical financial articles at www.financiallysmartadvice.com. Please email comments to advice@financiallysmartonline.com