The Cycle of Debt for Farmers: How to Avoid Falling Into the Trap

Debt can be a helpful tool when used wisely, but it can also be a trap that’s difficult to escape. For farmers, the cycle of debt can start with taking out loans to purchase equipment or land. Then, as operating costs increase and crop prices fluctuate, they may need to take out more loans just to keep the farm running. This can create a cycle of debt that’s difficult to break free from. In this article, we’ll focus specifically on that. So, let’s start.

What is the Cycle of Debt?

The cycle of debt is a never-ending cycle that traps many farmers in a spiral of borrowing more money to pay off previous debts. This can be incredibly damaging and often leads to financial ruin.

Farm debt can be crippling to a farmer. Whether it’s due to the lack of land or high agricultural equipment costs, farmers are increasingly facing a squeeze from piled-up debt. To stay competitive, many farmers are contracting new debts to modernize their operations. 

At the same time, these farmers are losing their agricultural labor in the process. Meanwhile, international competition, high agricultural prices, and the market grip on production are all pushing farmers to intensify their operations. Even the most eco-friendly farming practices can’t compete with intensive agriculture.

How Does the Cycle of Debt Trap Farmers?

The amount of farm debt in the U.S. is staggering, topping $350 billion. In 2016, more than half of farmers were underwater on their loans. Approximately 60,000 farmers in the United States lost their farms because the value of their assets dropped below their debt balance. 

This year, more than one in four farmers filed for bankruptcy. Even though the interest rates have remained low, the impact of the debt is clear.

A shortage of credit forced these farmers to borrow from informal moneylenders, charging interest rates two to three times the typical interest rate. Their monthly payments ranged from twenty-four percent to sixty-two percent, far higher than the four to ten percent that farmers would pay at a bank. 

This pandemic led to the farmers getting trapped in the cycle of debt. However, it was the need to borrow from informal moneylenders that forced the farmers to enter the debt trap.

Unfortunately, this cycle of debt has trapped more farmers than ever before. Farmers needed funds to service their loans, fund their next agricultural season, and support their families. But the loans often did not come through during the sowing season, leaving the poor farmer high and dry. 

Eventually, this cycle of debt accelerated because the process of recovering loans has become unethical, bordering on criminal. Ultimately, this situation is far worse for the farmer than the lender.

How Can You Avoid Falling Into the Cycle of Debt Yourself?

To avoid falling into debt, stop borrowing. Only borrow what you can afford to repay, and ensure that you have the cash flow to cover repayments. Always pay off existing debts before taking on new ones. Never borrow to pay existing debts. Here are some tips to avoid falling into debt:

Don’t Buy a Credit Card

One of the first tips that you should follow to avoid falling into the cycle of debt is that you should not buy a credit card. The high-interest rate, hidden costs, due date, bounce charges, etc are a few reasons that could create financial distress by using a credit card.

If you’ve accumulated large amounts of credit card debt, it’s important to pay them off. Credit card interest rates are much higher than they are for other types of debt. Missed payments can add up and make you fall into deeper debt, reducing your financial stability and ability to borrow money in the future. That’s why it’s important to plan and avoid making foolish decisions like spending impulsively.

If you’ve fallen into a cycle of credit card debt, there are a few things you can do to stop yourself. For starters, stop using your credit cards. Only borrow what you can afford to pay back. Be sure you have enough cash flow to meet repayments each month. You should also pay off your existing debt before you take on new ones. And, remember, never borrow to pay off your existing debts.

Always Clear Your Dues on Time

Although it is hard to escape the debt trap, there are certain basic steps that you can take. One of the best steps you can take is to know exactly how much you owe and clear your dues on time. 

This is especially important if you have several loans. Knowing the total amount you owe will help you plan your payment and realize the urgency of your situation. You should also know the interest rates and the duration of your payments to avoid falling into a spiral of debt.

Have an Emergency Fund

If you are living paycheck to paycheck, a small emergency can be a good option for you. When a sudden expense arises, you want to be able to pay for it. While it can be tempting to pay off debt at all costs, having an emergency fund is far more important than paying more than your monthly minimum payments. 

Whether it is a car repair or a large purchase, consider paying cash or paying in advance. If you can, pay in cash and avoid interest payments.

Understand Your Finance

Understanding your finances is a simple yet crucial step your should follow to avoid falling into the vicious cycle of debt. If you don’t know where your money goes each month then you’ll be surprised to find that it goes to things you don’t even need. 

Having a clear idea of what you spend your money on will help you create a budget and develop a plan to deal with your financial problems. Once you have an idea of what you spend money on, you can begin the process of debt repayment. By implementing a sound financial plan, you can avoid the cycle altogether.

Understand Your Debts

One of the best ways to understand where you stand in terms of debt is to keep track of all your expenses each month.

Knowing your debts is important because paying off one bill will free up income for other things. Being aware of your expenses helps you control spending and identify leaks in your budget.

Breaking the cycle is not an easy task, but it is possible to get out of debt and improve your credit score. You will need patience and time to achieve success. Here are a few tips to help you get started.

Diversify Your Earnings

While farming can be a lucrative career, it can also lead to financial difficulties if you don’t diversify your earnings. Diversification means expanding the number of enterprises you have on your farm. 

This can take many forms, ranging from adding additional value to a crop to maximizing your resources. You might consider custom planting or harvesting, storing grain for others, or utilizing your existing labor and management skills

Building extra income is an excellent way to escape the debt cycle. Whether you earn enough to pay your bills or not, you should try to do some extra work like an online side hustle, investing, a part-time job, etc., and earn more money. 

Create a Spending Plan

One way to avoid falling into the cycle of debt is to have a spending plan. Before figuring out how to reduce your debt, you should analyze your spending habits and determine what you can do to make more money. 

Try to spend more on necessities first, and less on big purchases. Your budget should reflect this. But remember that it’s not always possible to cut back on your expenses. Depending on your circumstances, you might have to trade in a few things.

Prioritize Your Spending

You can prioritize your spending to avoid falling into debt as a farmer by considering what you need. There are some expenses you simply cannot do without, like rent, food, and utilities. 

Other expenses, like medical insurance, are not negotiable. Prioritize these expenses first and work with the money you have left over. In addition, reevaluate your priorities.

Alter Your Lifestyle Little by Little

In addition to being in debt, you might be in the middle of a farming pandemic. The devastating effects of the pandemic can make farming difficult and can push farm businesses past the point of no return. To avoid falling into the cycle of debt as a farmer, change your lifestyle little by little.

Consider Debt Consolidation

As a farmer, you are likely already in a lot of debt. You may have even started a farm, and now your family is facing a crisis due to the high costs of the equipment and supplies. 

Debt consolidation is one way to avoid falling into this cycle. When you combine your various debts into a single payment, you’ll only have to make one monthly payment instead of several. 

The added benefit of debt consolidation is that it makes your budgeting easier and makes it harder for you to miss payments.

While debt consolidation is not a quick fix, it can increase working capital in the short term and reduce your total debt over a longer period. 

However, not all options are created equal. Many will increase your total debt over a longer period. Debt consolidation for a farmer is a great option for many reasons. 

Consolidating debt can allow you to make capital improvements or expand your farm without taking on more debt. It also helps you qualify for a loan renewal during low commodity price cycles.

Resources for Farmers Who Are Struggling With Debt

Farmers in the USA can turn to many sources for help when they are struggling with debt. Resources like The National Agricultural Law Center, and the Farm Financial Standards Council, are available to help them through this difficult time. 

The following are some helpful resources for farmers who are struggling with debt:

1. The National Agricultural Law Center: 

This center provides information on a variety of legal issues affecting farmers, including debt and bankruptcy.

Farmers have many relationships with a variety of professionals in the agricultural sector, including bankers, feed store owners, veterinarians, and other experts. These professionals often have to deliver bad news, so they may be referred to crisis counseling services and mental health providers.

The National Agricultural Law Center offers free debt counseling for farmers in the USA who are struggling with debt. Further, farmers can reach out to friends and family for support.

2. The Farm Financial Standards Council

The Farm Financial Standards Council is an organization that provides financial guidance and counseling to farmers.

It is a group that develops standardized financial guidelines for agricultural producers. The organization was formed in 1989 after the financial crisis that hit the farm industry in the 1980s. 

Its members include farmers and ranchers, accountants, finance and tax professionals, academics, lenders, consultants, and organizations that produce agricultural finance software. It now has more than 150 members.

3. The Agricultural Mediation Program

The Agricultural Mediation Program is a state-based organization that provides free mediation services for farmers and ranchers in the USA to help resolve disputes between farmers and their creditors. 

A mediator can help farmers resolve debt-related issues more informally, and is certified by the USDA and CDFA. The mediator will conduct a confidential interview with all parties involved and arrange a session. If both parties agree to attend, he will set up the mediation.

4. The Farm Credit Administration

This agency provides financial assistance to farmers through a variety of programs, including loans and loan guarantees.

Farmers can apply for assistance under the Farm Credit Administration, a government-sponsored organization. It helps farmers by extending the terms of their loans and easing new loan documentation terms. 

The Farm Credit System is made up of a nationwide network of lending institutions that serves eligible farmers. The Farm Credit Administration also regulates the Federal Agricultural Mortgage Corporation, which provides a secondary market for agricultural loans.

5. The Farm Service Agency

As the United States has the highest percentage of farms and ranches, the Farm Service Agency provides resources to help struggling farmers in the USA overcome debt. Their services to the farmers include financial assistance and counseling. etc. 

USDA has a program that aims to provide loans to historically underserved farmers and ranchers. The last time the Farm Service Agency gave out loans to a farmer, 13 percent of these were to a woman. These statistics show that women are more likely than men to run a farm.

6. The Rural Development program

Today, a growing percentage of farmers in the USA are facing significant debt problems. High input costs, stagnant production values, and challenges to accessing land have all contributed to the current unprecedented high levels of farmer debt. 

The Rural Development program is a source of assistance for farmers in the USA who are facing debt problems. Farmers, ranchers, and foresters can apply for a variety of loans, including guaranteed loan financing. 

Foreclosures and acceleration of direct loans have also been suspended. In some cases, borrowers may have already received a Notice of Intent to Accelerate their loans. However, borrowers should note that the USDA does not pursue the acceleration and foreclosure of these loans.

7. The Small Business Administration

The government recently sent thousands of letters to farmers in the USA who are behind on their debt. The letters were intended to inform farmers that they are eligible for debt relief. 

The government is paying these debtors to clear tax liabilities and any fees related to clearing their debt. However, a lawsuit by white farmers halted the program, arguing that it discriminates against farmers of color.

8. Legal Aid: 

Legal Aid provides free or low-cost legal services to low-income individuals, including farmers.

Last year, President Biden signed a stimulus package that included $4 billion in debt forgiveness for Black farmers. 

Farmers of color have long faced discrimination in the agriculture industry from the federal government and banks.

While the federal loan program was designed to help nonwhite farmers, it has faced resistance from White farmers. The USDA has been accused of discriminating against them, including denying loan applications to those with marginal backgrounds.

9. State and Local Governments

Some states and local governments offer programs and services to help farmers with debt relief.

The United States’ stimulus package includes billions of dollars for disadvantaged farmers, including Black farmers. 

10. Private charities: 

There are a number of private charities that provide financial assistance to farmers in need.

In a country where agriculture is still the main source of income, many American farmers are finding new ways to generate income. Many rural towns lack thriving economies, and there are few large retailers or services 


As the economy struggles, farmers have turned to other sources of income. The cycle of debt can be difficult to break, but it is possible with a little effort. In this article, we have outlined a few steps that may help you get started on breaking the cycle. 

These include making a budget, stopping the use of credit, starting an emergency fund, and making extra payments towards your debt. If you are struggling to manage your debt, some organizations can help. Let us know in the comments if you have any questions about getting out of debt or managing your finances as a farmer.

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