Robbing Peter to Pay Paul

While using one credit card or loan to pay another debt is obviously not an effective way of reducing debt, it is somewhat common among those struggling with debt because it delays confronting the issue.  Almost everyone has debt: credit card, medical, mortgage, auto, student, etc.  Average credit card debt per household with credit card debt: $15,956.  However, what most people don't realize is how close to a financial disaster they are each month.  Many people carry debt balances and as long as they maintain their employment income they can service the debt payment each month.  Hopefully, with a payment in excess of the minimum payment due.  Because the cost of living continually increases at a pace more rapid than the wage and salary increases of the average employee, more and more people are using debt to fill the gap between what they need for monthly living expenses and what they can pay from their monthly income.  Over time, the debt continues to grow, but as long as the individual has a steady stream of income, s/he can continue to make the debt payments.  

However, because the monthly income is going to monthly expenses and debt payments, people have not been able to save money for a "rainy day fund."  Because of this, most people are one layoff, reduction in hours, or medical leave experience from financial disaster.  When the monthly income isn't sufficient to pay monthly expenses and make all debt payments, people may turn to credit cards or loans to make payments on the debts.  The rationale is usually that the action is a temporary fix until the return to employment or when more hours are available again.  The problem is, that the return to employment, or increase in hours needs to occur virtually immediately in order for the person to catch-up on the debt.  Without the safety net of a rainy day fund, if the income situation does not improve within 30-60 days, the debts will grow more rapidly until the debt being used to make payments on the other debt is maxed.  Once that occurs, the individual is now faced with (at least) two debts s/he cannot afford each month.

Because many people hold out hope that the situation will be resolved soon, they continue to dig themselves deeper and deeper into deep, until even if they returned to their normal income, they would no longer be able to make the minimum payments on the debt.  Instead of addressing the problem, they exacerbate it by increasing their debt load.

If you're facing a similar situation, you should educate yourself before reacting to the situation by robbing Peter to pay Paul. If you are struggling to make ends meet, call Mike for a free consultation at (763) 229-7538.  Know what your options are and make an educated decision. 

This content is not meant to constitute advice of any kind, including without limitation, legal advice of any kind. If you require advice in relation to any legal matter you should consult an appropriately qualified lawyer.

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