Estimated reading time: 7 minutes
Why do people go into debt? There are many reasons, but some of the easiest are those that are overlooked.
Find out why people go into debt and how to avoid financial pitfalls. Stay in control of your finances and secure a stable financial future.
I’ve created a list of why people go into debt; I’ve learned they are all connected.
A debt-to-income ratio is solely situational, based on how money has been earned and managed.
Explore the various factors contributing to individuals going into debt and gain valuable tips on staying financially stable.
Divorce or Separation
When couples split, they don’t realize the amount of debt they can incur when dealing with lawyers, real estate agents, spouses’ debt, etc.
Factor in a child or spousal support, which can take a big bite out of your pay, leaving you short of paying the bills.
Remember that money is the number one reason couples fight and split up!
Rebuilding life and finances after a divorce is possible, but like anything, it is a journey to a destination.
Life Without A Budget
I’ve said it repeatedly, but a budget is imperative no matter how much you earn.
Some people feel a budget takes too long or fail to understand how to begin using a budget.
It’s important to know that if you are in a relationship, for a budget to work, both parties must agree to use it.
Money fights and problems can arise when the ‘team’ is missing in teamwork and finance if you are in a relationship.
Some people put their time and happiness before finances; again, this can bite you if you let debt build.
An example would be a honeymoon that costs $4000 when you are 40k in consumer debt!
There are so many websites online that will help you with your budget.
Canadian Budget Binder is one of them, where we publish a Budgeting Series to help guide you on your journey.
If you want to get out of debt or stay away from getting into debt, start a Budget today and stick to it!
Spending Too Much On Credit
When people shop, some get emotionally stimulated when they see, touch, and feel items and justify their needs.
This type of emotional spending is what sales associates thrive on.
If you walk in with a puzzled look or come across as an easy target, they will peg you as a money maker.
A money maker is a customer who is easily influenced by what they perceive as someone with expertise.
It would be best to find out why you are filling the void or the hole in your life to stop the emotional spending.
How many people rush out for the latest mobile phone or the biggest and best Smart TV?
Where do most of these expenses end up?
You guessed it- on a credit card.
Check Your Emotions
Leave your emotions and impulsive feelings at home, male or female.
Shopping with emotion will cause you to overspend.
I don’t care how orgasmic the product makes you feel; if you don’t have the cash, you don’t buy it.
Easy Credit + Minimum Payment = Lots of Money Owed, Stress and Reduced Sleep!
Lazy With Money
Just because you make a nice chunk of money doesn’t mean you can’t get your hands dirty or put a little more sweat into keeping your finances on track.
We have capable friends who hire house cleaners, lawn maintenance workers, general house maintenance repair people, grocery shoppers, dog walkers, gardeners, etc.
Then they complain that they are strapped for cash or in debt up to their eyeballs.
A little work goes a long way, mainly when the money stays in your pocket.
OK, granted, some people are busy, and others have physical limitations, which is understandable.
However, for the most part, I’m talking about the people who blow money when they can do it.
These services come at a premium cost and are relatively easy to do independently.
Get out there and give it a try. I’ve survived it, and so can you.
There are plenty of so-called millionaires with little to no Net Worth because they blow it like the wind.
They are no richer or farther ahead than the average person who makes an average salary but saves money.
Be smart with your money, spend less than you make, and save.
Loss of job/Injury/Illness/Death
Lifestyle Inflation
This is a big one as some people go hog wild when they get a big raise or take home a huge salary.
They play to fit the role of buying the nice car, the big house, boat, cottage, you name it!
In an instant, this can all be taken away, no matter your income level.
Ask yourself these questions because some debt comes from unexpected emergencies beyond your control.
- What would you do if you financed all the big-ticket purchases and lost your job?
- What if you injured yourself at home or work and are no longer able to work?
- What would you do if a medical emergency happened in your family?
Prepare for these potential situations with an Emergency Savings Fund, not spending more than you earn.
Stay away from keeping your debts so high that if something did happen, you would be up the river with no paddle!
Make sure you have all the proper insurance coverage!
You never know when you will need it.
It’s better to say, “Thank Goodness I’m/We’re covered,” than to have nothing.
Immaturity and Ignorance
The last reason some people go into debt is potential ignorance, which is that they don’t know how to manage their money.
They have no idea what they spend and are immature with their money due to a lack of knowledge.
Unfortunately, worry sets in only when the bill comes in, and they hope they have the money left from their paycheque to pay it.
Some people don’t ask for help or don’t want help because they don’t think they have a problem and know everything about money management.
These people are most apt to declare bankruptcy or have serious debt!
Be open to educating yourself on finances, ask for help, and don’t feel ashamed.
Undoubtedly, we are all human and not perfect by any means.
There is no such thing as a foolish question.
Someone is always willing to help.
Educate children young so they understand finance and money management.
Starting young will assist your children in what could be one of the best starter financial lessons of their lives.
No matter your reasons for going into debt, you will pay a high price for not managing your money correctly.
Take a step in the right direction, never give up and fight debt.
Thanks for reading,
Mr. CBB
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I agree with all of these. And as a divorcee myself, I can say #1 proves that debt can happen to anyone, no matter how hard they try to stay out of it!
I agree with all of the above and would add school. More than half my debt is school related. Tuition, books, rent etc it all adds up!
True, I hear ya. I look at school as a good debt as long as you are working in said career than its a good investment/debt. I bought my books used on kijiji for school and saved alot. I also saved up with part time jobs. This helped to pay for my University so I had no debt after 4 years. I also went back to school in Canada and paid cash for all of that as well. School doesn’t have to end in debt as long as parents teach their children to save. Thanks for your comment rain4ever and hope you get your education paid down quickly! Mr.CBB
I agree with above… with today’s economy and the way the job market is more and more people are staying in school longer or returning to school.
I’m 48 and did the same. Ironically, We were told in our class to expect the wait time to find a job from 6 months to 18 months today.
It’s been six months for me and it’s the longest, I’ve ever been out of work with not much in sight. I ow have the burden of being out of work dubbed with a hefty student loan to carry.
I have had no debt in ten years, and now have a hefty loan that in hind site, could have bought me a new car to get me to a region that does have jobs.
If I had known then what I know now…. I would have bought the new car instead!!!