10 Reasons Why People Go in Debt.
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This summer, I reconnected with an old friend and told her about how my husband and I are paying off our debts in order to travel. “My church offered a debt-free class, but I don’t have a spending problem, so I didn’t go”, she explained. Was she suggesting I had a spending problem? Did she believe that my debts were caused by my excessive spending?
I wasn’t surprised by her reaction to the topic of debt, but I was a little offended. We don’t have a money problem. I rarely go shopping for things other than what we need. When I go over my grocery budget, I get worried. I didn’t need to defend our reasons for being in debt, so I patiently held my tongue.
Her remark about overspending made me wonder why people get into debt. Being in debt myself has made me more sympathetic to those who are in debt for legitimate reasons. Sometimes a person can’t help their situation in an America that says debt is completely normal.
1. A job loss or a significant cut in pay
Losing a job is one of life’s most stressful events, and thinking positively while looking for a new one can be difficult. Continual worry about how you will pay your expenses takes over your brain, and shame, frustration, betrayal, and other emotions may also enter the picture. Even so, a job loss does not spell the end of the world. In fact, it may be a chance for you and your family to band together and implement some financial planning. You might even find better paying or more satisfying work; all you need is a strategy for surviving a layoff without incurring significant debt.
2. Medical bills
Anyone who has ever had a medical emergency or dealt with a chronic, sudden illness knows that seeking medical care isn’t always an option. Even if a patient has the foresight to plan ahead of time for medical treatment (such as an elective surgery or health screening), numerous patients are still left with medical costs they can’t afford.
Hospitals frequently overlook or fail to screen patients who are eligible for financial assistance programs. Charity care as well as other community benefits are required by law for non-profit hospitals. Here is where self-advocacy can have the most impact. Hospitals will sometimes retroactively qualify patients and write off their debts. Dollar For volunteers will assist patients in advocating for this.
3. Taxes
The Internal Revenue Service collected $1.76 trillion in individual income taxes in 2015, plus $389.9 billion in business taxes. Even after audits and other enforcement efforts, approximately 14% of federal taxes remained unpaid. You don’t want your name to be on that list.
If you own a small business, taxxes become more complicated as you earn more (and owe more). To avoid a major problem, make tax payments a primary concern early in the year, even before they are due. Taxes should always take precedence over non-essential bills or expenses that can be made later.
If you have past-due payments or are unable to pay the bill, contact the IRS to inquire about making a partial payment or requesting an extension.
4. You think you need to build credit
Dave Ramsey covers this myth and breaks down that the FICO score is just an I Love Debt score and doesn’t take your net worth in account at all. I certainly fell into this trap in college. Building credit is a myth.
It is worse to have no credit than to have bad credit. This may appear to be counterintuitive, but it suggests that having a little debt is preferable to never having debt. Someone who ends up paying student loans, a car payment, and a credit card (on time) has more financial obligations, but they also have a higher credit score than someone who had college paid for and has never used a credit card.
5. Your parents didn’t teach you how to handle money well
While we can’t exactly blame our parents for our actions, their teaching (or lack thereof) has a significant impact on our financial health. Most of my money-savvy friends attribute their success to their frugal parents. I’ve seen many people in FPU because they didn’t learn about finances as children and now have to learn as adults with a mountain of debt.
6. Overspending
Every day, people use their credit cards at the mall and restaurants. Companies make it extremely easy to spend money that you do not have. Purchasing a vehicle for which you do not have the funds is also an example of overspending. Taking a vacation that you cannot afford financially. Financing a remodeling project.
7. Divorce
The best way to avoid problems with debt division during a divorce is to dissolve joint accounts prior to actually going to court. Refinance the house, car, and other loans in one person’s name if possible. Cancel shared credit cards and seek to credit card balance transfers to transfer debt to individual cards.
8. Home and Car Repairs
According to a recent survey, just under half of Americans have enough savings to cover a $1,000 unexpected expense. But that doesn’t mean it’s impossible to save. People return cash on a regular basis, and if you don’t want to use debt to pay for car repairs, now is the time to act.
One way to avoid incurring debt for auto repairs is to perform them yourself. A DIY strategy could save you a lot of money on labor costs if you are a hands-on type of person who doesn’t mind getting dirty. You can also save money by shopping at both physical and online auto parts stores. You could even go to a salvage yard.
9. School Loans
Students who leave college with too much debt postpone important life events such as purchasing a car, purchasing a home, marrying, having children, and saving for their own retirement. They are under pressure to accept the job that pays more rather than the job that is a better fit for their career goals. They may even be forced to remain in poverty and return to live with their parents. There are, however, ways to reduce your student loan debt so that you don’t have to put your life on hold once you graduate.
Before you borrow, you should make a budget. This will allow you to borrow only what you require. Loan limits are frequently higher than what you actually need to borrow. Having a budget in place ensures that you do not overborrow and, as a result, overspend.
10. Sh*t Happens
Emergencies happen and that is a fact. When you don’t have an emergency fund, then going into debt happens.
Sigh, this list is depressing. We have all made stupid choices. It isn’t just having a spending problem that gets you into debt. It could be layoff from a company, a cancer diagnosis, or they may just be trying to feed their family and keep the lights on.
Not everyone who goes into debt is a spender. Life happens, but now we can help it with a budget, emergency fund, and living within our means. There is hope!
Final Word
A budget can aid you in both paying off debt and avoiding further debt. Creating a budget now, even if you haven’t done so before, can be the most powerful step you take toward getting your control over your debt.
Create a list of all of your current loans as your first step toward creating a budget that fits your life and debt-reduction goals. Include the total balances, minimum monthly payments, and interest rates for each loan.
Once you’ve compiled your debt information, you can plug it into a simple spending plan spreadsheet to see where you can find extra money every month to put toward your debt.
