Playing musical chairs with debt

I was going to call this article ‘Robbing Peter to pay Paul’ but something in that phrase implies that while Paul might get paid what he is owed – Peter never gets paid and never seems to bother reporting the crime.

If you’ve been juggling your debt by borrowing off one source to pay another you know that while Peter may get paid some of what he is owed Paul isn’t long about coming looking for his money back.

To me juggling debt in this fashion could be more accurately described as a game of musical chairs. (For those of you that haven’t heard of the musical chairs game here’s a link to an explanation – musical chairs.) The reason I think musical chairs is a more appropriate description is because when you juggle debt by borrowing from one source to another you are gradually tightening the choke hold on your finances. As with musical chairs each time the music stops or you receive a bill your options become more and more limited until eventually you are eliminated from the game.

Elimination from the debt musical chairs game could take the form of bankruptcy or foreclosure.

If you are playing the game of borrowing from one source to pay off another then you might congratulate yourself that you have made all your minimum payments – well done, you may just have a perfect credit score. Now for the unpleasant part, what happens when your sources of credit runs out? Is it possible to continue doing this forever?

Once in the vicious cycle of juggling debt then it’s like a treadmill where you are running just to stand still. It can be incredibly difficult to break this cycle without missing payments on your debt.

However I think the alternative to not breaking the cycle is much worse.

Each month as more borrowing is used to make the payments on existing debt the pressure on your finances continues to mount. Your borrowings are growing monthly but not only that, the new borrowings you take on to meet your payments will start to accrue interest. If you are using credit cards to do this you are effectively using borrowed money to make interest payments which in turn will start to cost you more interest. Confusing? Don’t worry all you need to know is that you will effectively be charged interest on interest just to maintain your current financial situation – not good.

As you can imagine what may have started out as a small debt can morph into something much larger and uncontrollable.

Juggling debt – seemed smart at first.

I use to do a bit of debt juggling a couple of years ago. My overdraft was at its max and I needed to make a few loan repayments so I put them on my credit card. I figured that it would be just this one time and that I wouldn’t need to do it the following month. Unfortunately the following month the same thing happened and I ended up using my credit card again to pay some of my loan repayments. This went on for about four months and if I’m honest I really started to feel the pressure as my credit card fast approached its limit.

The last thing I wanted to do was to increase my credit card limit or get a new credit card. It was looking more and more likely that I was going to have to do one or both of those things. I was getting deeper into debt and the interest and fees were mounting fast.

I had no other choice but to move out of my rented apartment and back in with my parents. Not the most ideal scenario for a young man in his twenties. Needless to say this was a huge saving for me and it allowed me to divert what I would have been paying in rent towards my debt. It was not without its cost however – emotionally I felt like I was taking a huge step back. I had moved out of home a few years previously but now I was back living with my parents. As you can imagine I didn’t go around broadcasting the fact.

I was lucky in that I had the option of moving back in with my parents. Most people aren’t as lucky. However in most people’s situation there are one or two pieces of radical action that they can take to jumpstart their debt repayments without having to resort to additional borrowing.

If you are caught in this game of debt musical chairs then you have to ask yourself what action can you take that will have the biggest impact on your debt?

Normally I would be focused on long term change of habits – obvious things like quitting smoking. However in this situation the focus is purely on the short term. Could you sell or trade in your car for a smaller cheaper one and pocket the difference? Could you move in with your parents or a friend or even into cheaper accommodation? Could you rent out a room in your home? Do you have anything of value that you could sell?

Painful options and difficult decisions I know but not half as painful or difficult as playing a constant game of musical chairs all the while waiting for the music to stop.

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