Breaking the debt cycle
- Julie Barrow
- Feb 28
- 3 min read
In a world where tap-and-go is second nature, spending has turned into more of a pastime than a necessity. We are surrounded by products that support our spending habits, such as buy now, pay later (BNPL) or Small Amount Credit Contracts (SACCs) (like Nimble or Cash Converters) that can solve all your problems in an emergency.
What defines a financial emergency? Can a financial emergency exist if you have savings?
I understand financial emergencies. I've lived this way; years back, we were caught in the cycle of buy now, pain later. Although it appeared slightly different from the modern versions like Zip Pay or Afterpay, it was essentially the same issue: unaffordable debt.
Visit a furniture store, spot a stunning couch beyond your budget, and convince yourself of its necessity as the store assistant completes the paperwork for instant approval (with additional credit available for future use upon leaving the store) and life went on, until an emergency arose....
How to stop the debt cycle
It's intimidating to break free from the cycle of living pay cheque to pay cheque with credit as your only safety net, but it is achievable, and I assure you, it's also liberating!
What actions did I take? What steps do I recommend?
Record your monthly income and expenses, and calculate any remaining balance. If you find yourself in a deficit, think about whether you can reduce expenses or boost your income. If no changes are possible, consider consulting a free community financial counselor for options in relation to your debts. (I strongly recommend them as I am one!)
During this period, I took out cash from the bank every payday to manage living expenses, which helped me stay on budget (more on this in a future blog).
Set aside funds (and/or sell items) to build up at least a few weeks’ worth of expenses ($500-$2000) in a savings or emergency account.
Arrange your debts in order from smallest to largest (excluding your mortgage, which you will keep paying), and make minimum payments on each. Direct any additional funds toward your smallest debt to pay it off as quickly as possible, a strategy referred to as the "debt snowball" method.
After paying off your smallest debt, apply the amount you were paying to the next debt, continuing this process until all personal debts are cleared.
Accumulate enough savings or emergency funds to cover 1-3 months of expenses. If your mortgage has a redraw or offset account, you could place most of these funds there to reduce interest.
Once you've set up your savings or emergency fund, move on to making extra mortgage payments, or if you rent, set savings goals for the future, like increasing superannuation contributions or saving for a house deposit.
I suggest finding support as you work on paying down debt to stay motivated. I told a few friends about my goals and enjoyed listening to personal finance podcasts like Dave Ramsey and Frugal Friends. I also wrote in my Financial Wellbeing Journal to reflect on my achievements each week and month.
You can achieve this; living without relying on debt is challenging but truly transformative. I've never felt more empowered than when I paid for an overseas vacation with cash and still had savings in the bank. This is what real financial freedom feels like—don't you deserve it?
All the best on your journey to financial freedom.... Julie xx
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