Most people rarely think about the source of their debts. Do you ever sit down and think, “Why am I drowning in debt?’’. You probably live from one paycheck to another. Debts are consuming and threatening to drive you to the edge.
There are many reasons why we end up in debt. There are also ways of getting out of debt, including debt consolidation, settlement, or bankruptcy. While these will help you get out of debt, they will not help you manage your debts in the future. You need to know the reasons why you’re probably in debt before considering bankruptcy.
Here are the 6 reasons why you are probably in debt:
Unfortunately, underemployment might make you feel like it is only a temporary point in your life, but it can get you deeper into debt. If you have to borrow money to survive even though you are holding on to your part time job for survival, you may need to consider getting a second job.
List your expenses and how much you would need to rack up your current income. Then, look for another job to complement your first income. This will help you manage your life without getting into debt.
- Loss of income
Are your expenses more than your income, especially if your employer has reduced your income or you have lost your job? If you do not find a way to lower your expenses, you will end up in debt trying to survive.
In such a situation, a change in lifestyle might help reduce your expenses. A new budget with your new income situation will help you plan financially.
- Medical expenses
Many people are one severe illness away from poverty. Why? Consulting a doctor will cost you money. So is buying medications or catering to regular treatments. Poor health policies are not making it any easier.
Doctors also prefer to use a debt collection agency to deal with non-paying clients. In such situations, it is easy to rely on credit cards or borrow money from somewhere else to pay for medical expenses.
One way to avoid this is by getting health insurance. The premiums can be expensive, but it is cheaper than facing a major injury or illness without a cover.
Second, try building an emergency fund using any extra income or any money you can save. Your savings fund would be able to cushion your expenses for at least 6 months to 1 year. With such a fund, you will always have something to fall back on.
Believe it or not, the collapse of marriage sends many into a debt rut. For starters, it means you are moving from a 2 income household to a 1 income household.
Secondly, one of the parties might end up paying alimony or child support. Third, there are the moving expenses in case you are the one moving out and money for the divorce lawyers.
We are not saying that divorce is terrible. But, if you find yourself heading towards divorce, an amicable divorce will save you a lot of headaches and money.
You can find an arbitrator or a mediator, so you avoid going to court. Maybe share some of the assets so that the other party does not have to start their life all over again from scratch.
Gambling is a thorn in many societies, not just America. Yet, it is one of the many beloved sources of entertainment. In reality, you are guaranteeing someone else, “the house” money, while you lose.
What makes gambling worse is that there are many sources of quick cash nowadays, including loan apps. As gambling promises one fast cash as a “win,” people quickly become addicts of gambling with the hope of striking the jackpot. This addiction will lead to borrowing money everywhere to hit that jackpot.
Seeking help will help you get out of gambling and prevent you from getting deeper into debt.
- Lack of money management skills
Sometimes, you can have enough income, health insurance and even no gambling addiction but still end up in debt.
What are you doing wrong? Well, you lack proper money management skills. A budget will help you track your income and expenses. Financial discipline will also go a long way in ensuring you stay the course.
The above are the most common reasons why many people end up in debt. With proper financial planning and discipline, you can live a comfortable and debt-free life. Be wise with your money, budget, save as much as you can and live within your means.