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Top 10 Causes of Debt: Part I
It never has been easier to incur large amounts of debt. To be a debtor definitely does not indicate that one is irresponsible or immature; rather, sometimes debt is inevitable or even necessary. You are not alone. In no particular order, following are some of the most common causes of debt:
1. Medical problems
Illnesses and unexpected medical emergencies can result in mass amounts of medical debt very quickly. 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.
2. 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.
3. Loss of employment
Particularly 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.
4. Underemployment
If you 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.
5. Lack of communication with your family
If you are trying your hardest to live frugally 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.
6. 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.
7. Divorce
Few life-changing events have as dramatic an impact on finances as divorce.
8. Not allowing for “fun” within your budget
When money is tight and expenses have to be cut, entertainment costs often for the first to go. While this may be necessary, try to keep at least a small opening in your budget for leisure activities. If you do not, then you might restrict your fun so much that you end up splurging on a large activity or expense to make up for your extreme cut-backs. In this case, you probably will end up spending much more than you would have if you had allowed yourself a little bit of entertainment in the first place.
9. Starting bad habits early
Though it may seem counter-intuitive, it actually is easier for college students to get credit cards than it is for the rest of the population. Even though most have not yet established credit histories, lenders are willing to extend credit to college students because they assume that parents will help to pay off any incurred debt. Without experience, it is easy to charge up unnecessary debt – which can lead to a pattern of poor financial management.
10. Too much credit card use
It is so much easier to swipe a piece of plastic than it is to hand over your hard-earned cash. Sometimes we get so caught up in the convenience of credit cards that we do not realize how much we have charged until the bill comes at the end of the month.
Get out of Debt: Change your habits
Are you bogged down with too much debt? One way to revive your perspective and revamp your spending habits is to mix up your routine by changing your habits.
Compare Debt Consolidation Rates
Mark Twain once wrote, "Nothing so needs reforming as other people's habits." Those little things we do without thinking aren't all bad. Habits help us automatically decide which hand holds the fork and the toothbrush, and which shoe goes on first. But other habits need to be reformed, particularly those that keep us from managing our money responsibly.
Identify your habits
When you have a debt problem, it can be difficult to know where to start making changes. You know you have to make a budget, cut down on spending money, stop using the credit cards-but incorporating those things into your daily life is far easier said than done. Most often, this is because habit takes you to Starbucks, or causes you to reach for the plastic, or has you buying a round of drinks for the gang.
Your best starting point is to identify the habits you have regarding spending. If you've recently experienced a lifestyle change, this could be a long list. Many recent college grads, for example, must transition from living in debt to living without it. Before graduation, they relied on a student loan or two and a credit card. After graduation, the paychecks start coming in; but so do bills for credit cards, utilities, and car payments. If those grads don't recognize their habit of pulling out the plastic for every purchase, they'll find themselves sinking under rising debt.
Changing habits
It isn't so easy to stop doing something that you're used to. An easier strategy is to replace your bad habit with a good one. Here are some examples:
Instead of shopping during lunch, go to the gym and work out.
Instead of charging gas purchases, calculate what you spend each week, and keep that amount with you in cash. You can do the same for your groceries.
Instead of buying a pricey coffee drink, make your coffee at home, whipped cream and all, and take it with you.
Instead of eating out daily, start a 'bring your lunch' club at work.
Consolidating debt
Sometimes, consolidating debt might be the first step towards revamping your money management habits. When you're feeling the weight of debt after years of overspending, consolidation puts you on the road to regular, monthly debt reduction. If you do consolidate, you owe it to yourself to destroy all of your credit cards. Doing so will force you out of the habit of charging and into the habit of paying cash.
Mark Twain also said, "Habit is habit, and not to be flung out of the window by any man, but coaxed downstairs one step at a time." So don't get discouraged! Changing those old destructive habits will be tough, but not impossible.
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