Reasons Why People Are In Debt
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This is an article that discusses the reasons why people get into debt. If you want to get out of debt, then knowing the “Why” is the most important step to solve your debts problem. This is a must!
What is debt? Debt is something that a person owes to somebody. Debt can be a good thing and also a bad thing. This has to depend on the reasons why we get into the debt. So if you are in debt and you want to get out of the debt, then you must know and find out the reasons why you can fall into the debt.
The first step in the process of getting out of debt is to figure out how you can create so much of debts. This is a must because without knowing this, your “debt free living” will not last longer. Even you manage to get out of debt in the shortest time, however, you will fall back to the debt if you don’t know the reasons why people and you get into debt.
Generally I can say that there are 2 categories of reasons why we will get into the debt. Let me call it the “Avoidable Debts” and “Unavoidable Debts”. Below have more details on each of them.
Avoidable Debts
Avoidable debts are the debts that we can avoid. However, there are still many people get into the avoidable debts. Below are some of the main reasons why people get into the avoidable debts.
- Compulsive Spending. Compulsive Spending means a person cannot control his/her buying desire and buy something that not necessary. The buying desire is simply more than those financial literacy and knowledge. According to some expert, this is a kind of psychology problem.
- Luxurious Lifestyle. Everyone dreams to have a luxurious lifestyle. However, in fact, this is another financial trap for people. Most high income and middle class people will fall into “luxurious lifestyle” financial trap. They will go out to buy their big house or vacation house by carrying new mortgage loans. They will also buy new boats or sport cars to show off their financial abilities. They still go for it and ruin all their personal finance even though they can’t really afford them.
- Bad Addiction. Some of the bad addiction such as gambling will also make people get into a big debt. By the way, many addictions in the world will ruin our life.
In conclusion, avoidable debts are more related to our self-control, characters, buying habits and money management. This is more about our internal factors. To solve this problem, we must learn the skills to overcome our habits and mindset. Self-improvement education material is important for people to get out of avoidable debt.
Unavoidable Debt
Unavoidable debts are the debts that we cannot avoid. In most cases, unavoidable debts are related to those disasters and unpredictable incidents that happen in our life or we can call it unexpected expenses. Some of the reasons why people fall into debt are:
- Losing Their Job. Many people are living paycheck to paycheck. So job is very important to most people as this is the only income source that they have. I already saw many examples how people fall into debt because they lost their job. They have no choice but have to call out some loans to cover their living expenses and etc.
- Experiencing medical issue. I think this is the cruelest thing that we might experience in our life. Nowadays, medical costs are getting expensive. Many people fall into the big debts due to the expensive medical expenses which in most cases we really don’t have much more choices available!
Unavoidable debts are more about external factors and beyond our control. However the good news is it is easier to be avoided compare to avoidable debts. A good financial planning such as money saving and starting an emergency fund will prevent us from most of the disasters in our life.
Conclusion
Generally, there are 4 lessons that we must learn to get out of debt or prevent us from being in debt:
- Self-Control. Control and behave ourselves to spend money wisely. Delay gratification is another keyword for this.
- Financial Planning. We must start to gain control over our finances and plan for our future. Please always remember that planning for the future is the best solution for the unpredictable incidents in our life.
- Money Management. Control and manage our expenses and save up some money for emergency fund.
Am I missing something? Please feel free to add it up below(comments).
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[…] 1. Why in the world do we get into debt in the first place? Journey To Financial Freedom suggests reasons for Why People Are In Debt. […]
Some people, like Harvard Business Professor Elizabeth Warren, thinks modern necessities like mortgages, insurance and cars are causing much of the debt and not just luxuries. I am debt free (thanks to NCN and Dave Ramsey) but I can see how people can be overwhelmed with mortgage and the cost of owning a home. Warren even suggests that people will opt out of family because it just costs too much. To hear the Marketplace podcast on the subject just visit my site, I wrote a post about it.
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[…] this, I talked about the reasons why people are in debts. After that I talked about how we can motivate ourselves to get out of debt by finding the reasons. […]
Maintain good health, so you don’t give boodles of your cash to mass victimizers as the pharmaceutical industry, the medical INDUSTRY, the medical technology industry…
I’m interested to know what it is most people go into substantial debt on… I’m guessing it’s a house, followed by medical, then a vehicle…
[…] Actually in most cases, there is something wrong with their cash flow management. There must be something happening in their way to spend money before that caused this cash flow problem. The theory of the law of cause and effect applies here. If you want to know the reasons, you can refer to my article Reasons Why People Are in Debt. […]