A strong theme that emerged in the Money Makeover Challenge this year was the extent to which applicants have built up large amounts of debt in a short period of time. This phenomenon is driven by the rising cost of living and increasing interest rates.
As households struggle to make ends meet, people become desperate and turn to credit to meet their monthly expenses. This is a very short-term solution – it’s simply kicking the can down the road, and results in even greater financial pressure once those debts need to be repaid, throwing people into a neverending debt cycle.
Another debt repayment strategy is using the so-called “snowball method” to pay off debt, starting with the smallest debt first. The benefit of targeting the smallest debt first is that you have quick wins early on. This gives you a psychological boost to keep on track.
All of our Money Makeover candidates this year need to deal with the issue of debt. Take a look at the strategies that they are using to break the cycle of debt.