[ITEM 2] QUESTION: How does a debt spiral work and how to stop it?

A debt spiral is a dangerous financial phenomenon in which a borrower falls into a vicious circle of constant borrowing. The mechanism of its operation lies in the fact that new loans, often from microfinance organizations at huge interest rates, are taken out to cover monthly payments on old loans. Over time, the total amount of debt grows exponentially because the new money is spent not on reducing the main principal of the debt, but on servicing the ever-increasing fees and interest.

The first and main step to stopping this destructive process is the complete cessation of the practice of taking out new loans and borrowings. No matter how hard creditors press, you must not try to cover old debts with new obligations, as this only exacerbates the problem. You must realize that a temporary deterioration of your credit history is less dangerous than complete financial insolvency and the loss of control over your life.

The second stage is a strict optimization of current expenses and a transition to a minimum-budget mode. Analyze all your spending over the past few months and give up any non-essential purchases, entertainment, and subscriptions. The funds freed up as a result of strict austerity should be directed exclusively to paying off the accumulated debt, starting with the smallest or most expensive loans.

The third step is to develop a clear plan for repayment or restructuring of the remaining debts. You need to contact all creditors, explain your difficult situation, and request loan holidays, contract prolongation, or an interest rate reduction. If negotiations fail, you can consider the official bankruptcy procedure through the MFC or court, which will allow you to legally write off unaffordable debts and start a financial life with a clean slate.