There can be plenty of reasons why a person accumulates debt. Emergencies, unemployment, and terrible spending habits are just a few of those. A lack of knowledge in managing income paired with not being content with what you have can lead to disastrous consequences. Large amounts of debt can consume your valuable assets, cause anxiety and mental stress, and can even hurt relationships. While there are tested and proven programs that are effective for eliminating debt, it is also of equal importance to be conscious of the reasons that cause immense financial errors. As they say, prevention is better than cure.
Here are the different factors that consume people into debt:
1. Irresponsible Use of Credit Cards
It’s understandably tempting to have credit cards on hand, especially since almost everything can be done online, from paying bills, shopping to booking tickets or doing groceries. Everything can be accomplished in just one click. On top of that, credit cards also offer great deals that are hard to resist. Those perks may seem like they will work to your advantage, but it’s the credit card companies that actually benefit from it.
It has been reported that credit card debt has reached $829 billion in the US. While you’ll be under the impression that you can eventually pay the balance off “soon” after spending away, the reality is that “soon” is still a long road ahead. The absence of discipline and funds can make those credit card perks end up as burdens in the form of debt. If your intention of keeping credit cards is to use them for emergencies, you’re likely to land yourself in debt. Close the accounts and cut them all up. Instead, come up with a financial plan that involves emergency funds for rainy days. That will serve as your safety net, not a credit card.
2. Insufficient Income
Spending money more than what you earn is the ultimate reason that compels people into debt. That’s the importance of living within your means. Create a budget that suits your income and stick to it. Budgeting can give you a transparent view of your income and expenses, letting you see what you can adjust. It enables you to plan how to catch up with all your expenditures before the interest does.
Although income plays a large part in why people are in debt, most of the time, it really boils down to an individual’s behavior. Spending less than what you make is typically an unfamiliar language in the modern world. But if it’s really an income issue, start bringing in extra cash through part-time jobs or selling stuff you no longer need that have market value.
3. Not Enough Savings
Personal emergencies affect households daily. It isn’t just about overspending but also unexpected circumstances. This is why most financial experts advise saving around 10% of your gross income of at least six months to cover the cost of any potential emergencies. When you need to pay for a huge medical bill, car or house repairs, or last-minute plane ticket bookings, you’ll end up resorting to credit cards if you don’t have any cash on hand. As mentioned, cards accrue interest charges and will cost you even more before you know it. Not having an emergency fund when you need it can definitely drown you in debt. Substantial savings are crucial in order for you to achieve your objective of financial stability.
4. “Keeping Up with the Joneses”
Keeping up with the hottest and latest trends in technology or fashion is what the “keeping up with the Joneses” mentality is. New “must-have” products are being released like mushrooms, and even though you don’t necessarily need them, you make the purchase anyway because your friends have them or media influencers told you so. Quit comparing and start saving.
Before you actually spend your hard-earned money on vacation in the Amalfi Coast of Italy, or purchase the Chanel boy bag or buy the new G Wagon Mercedes, make sure that you have already set aside emergency funds and cleared your debt. Prioritize them instead of spending money on stuff you can’t afford. The famous line, “If you can’t afford the minimum payment, go ahead and buy it!” has taken a wrong turn. Stuff you can’t pay for in cash will eventually weigh you down. So instead, don’t buy things you can’t afford, period.
Final Thoughts
One can easily fall into the causes of debt mentioned above. But with proper money management and budgeting, you can keep yourself away from financial disaster. Obtaining financial freedom takes a lot of hard work, a high level of discipline, and strong commitment. But with the right financial plan, it is possible. Taking sensible steps toward financial responsibility is your tool to avoid the quicksand of debt.
