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Know top 15 causes of debt

1. Poor spending habits/Money management It is essential to develop a monthly budget, and to stick to it. First, track all of your expenses for…

1. Poor spending habits/Money management

It is essential to develop a monthly budget, and to stick to it. First, track all of your expenses for one week to determine exactly where your money is going. This will enable you to cut back where possible so that you can save the “extra” funds. It is so easy to spend more money than necessary and to rack up debt by spending mindlessly.

2. Loss of employment or Underemployment

When one person in a household is the sole breadwinner, loss of employment can result in immediate money troubles. This is another scenario in which an emergency fund would be invaluable. If you also find yourself in a job for which you are over-educated or over-qualified, then you might be tempted to live as if your income is more in line with the job that you really want. This is particularly true if you recently have been unemployed. While you may very well get that higher paying job in the future, it is important to balance out your expenses with your income as it is currently.

3. Medical problems

Illnesses and unexpected medical emergencies can result in an accumulation of bills and an increased debt profile for those concerned. While there is no way to avoid such expenses, per se, you can help to prepare yourself for life’s curveballs by maintaining an emergency savings and keeping to habits that promote health and physical fitness.

4. Lack of communication with your family

If you are trying your hardest to live prudently and to save each month, but your family members are not doing anything to further that goal (or vice versa), then your financial situation is not going to improve much. It is crucial that you and your family are open and honest about earnings, what money is spent upon, and where costs can be cut back. You need to be on the same page, and with similar goals.

5. Relying on your credit cards

Credit cards should be valued for their convenience, but you should not be using them as extra income. If you are putting purchases on credit cards just to make ends meet, then you may be on the verge of serious debt trouble. If you do not have enough money to pay for something in cash, then you really do not have enough to pay for it via credit card either. Too much use of your credit card can also land you in debt.

6. Divorce

Few life-changing events have as dramatic an impact on finances as divorce.

7. Starting bad habits early

Many have developed such bad habits that can and will hurt their financial lives. For some, it is trying to live outside their means. For others, they cannot avoid impulse buying. Their house is a garage of toys and junks. For some others, it is wanting to live like the joneses. There are even some people who can borrow shoes, bags and other items of clothing to attend parties and social functions. Their lives revolve around debt. Anyone who lives like this will not only be trapped financially, he or she will be strangulated by debts. It is important that we begin to look at those habits we have which are injurious and ruinous to our financial lives and seek help to overcome them.

8. Not saving

Well now, this should come as no surprise! Saving even a minimal amount each month will allow you to build up an account that can help to protect against any unexpected costs, or against a loss of income, in the future. Remember the saying, “Pay yourself first.”

9. Failed business

It is an unfortunate fact that many start-up businesses fail, and when they do, the results can be financially devastating for the business owner. Particularly for small businesses, business owners sometimes become personally liable for debts incurred on behalf of their businesses.

10. Reduction in income

When an individual loses some portion of income that he or she is used to, it can be very difficult to adjust. Whether your working hours are cut back, overtime is taken away, or you have to quit a second job, you must adjust your spending habits to compensate for the loss. If you continue to spend the same amount with your reduced income that you did beforehand, then you will find yourself in debt.

11. Spending money before you have it

Nothing in life is certain. Do not spend money that you are expecting to get in the near future, but that you do not have currently. Whether it is an expected yearly bonus, a birthday present, an inheritance, or anything else, wait until you have the money in your account before you spend it. Or, better yet, save it!

12. Living outside of your means

You must develop a budget in order to determine exactly how much “disposable” income you have to spend on non-essential items. If you are living extravagantly and have no money to put into savings at the end of the month, then chances are that you are living beyond your financial means.

13. Gambling

While this might not seem like a serious or common cause of debt as the other reasons listed, gambling actually does contribute to a great deal of individuals’ debt problems. There is a famous British footballer, whose financial life is in a tangle because of gambling. Gambling has ruined many financial destinies, put families in penury and collapsed great dreams.

14. Single parenthood

Parents who are raising children on their own, for whatever reason, often have strained finances. This is just one scenario in which a savings fund is especially important. Should anything happen to the parent’s main source of income, a nest egg will be crucial.

15. Not understanding money/Financially Illiteracy

Even with the best of intentions, one can find him- or herself in debt simply by not being educated about finances. Without understanding how money works for you and against you, how it grows and how to use credit to your advantage, you may find yourself in a bad financial situation.

The list above at least represents many ways we get ourselves into debt. Debt is not funny. When you understand that the consequences can be grave, it would force you to be cautious about it. There is no free money anywhere. Debt is not free money. There is a cost attached to it. It also carries negative consequences if you default and it is an obligation that can tie down your future income or finances. Be very careful!

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