Top 10 causes of debt

The top ten causes of debt are:

  1. Reduced income with same or higher expenses
  2. Divorce
  3. Poor money management skills
  4. Underemployment / not earning enough money
  5. Gambling / addictions
  6. Medical expenses
  7. Saving too little or not at all
  8. No money communication skills / has a history of leading  to #2
  9. Banking on a windfall / spending before you get paid
  10. Financial illiteracy


Now here is an explanation of the top 10 causes of debt.

1. Reduced income with same or higher expenses.
Essentially this means you start earning less money each month and your bills go up each month.  The next thing you know you are unable to keep up with your bills and you wind up deeper and deeper in debt.

2. Divorce.
More and more couples wind up in divorce court nowadays compared to previous years. In most cases both husband and wife spend large amounts of money beating each other up in legal fees. Divorce and family lawyers are not cheap and the more you fight in court the more money you spend. The bottom line is people divorce rates are soaring and generally speaking divorce is not cheap especially when there is property and children involved.

3. Poor money management skills.
A monthly budget – spending plan is essential for surviving in the real world. Without keeping track of how much money you bring home along with the cost of your bills you are going to get yourself in financial trouble. Managing your money is keeping track of how much money you bring home each month along with keeping track of your bills. Ideally you should be bringing home more money then your bills are and it is also important to save some money every month.

4. Underemployment / not earning enough money.
This is pretty close to #1 above. People who experience underemployment may feel it will only be a short and temporary experience. This can lead to a false sense of financial relief especially when you are collecting unemployment and it runs out. Sure you deserve to take a break but at the same time it is very important that you earn more money then your bills are so you don’t wind up in a financial hole.

5. Gambling / addictions.
Gambling addiction and other addictions are outright dangerous in many ways. Being addicted to anything usually ends up costing you more and more money not to mention the many other problems gambling and addictions create. Gambling may feel like fun at first but once you get addicted it can ruin your life. If you have a gambling problem or any kind of addiction please seek the help and guidance of a professional therapist, counselor or speak to a doctor.

6. Medical expenses. Let’s face it we all know medical bills are not cheap especially if you do not have medical insurance. Most doctors, dentists and plastic surgeons take credit cards and many offer financing. If for one minute you think that this is for your convenience you better thing again. Doctors, dentists and plastic surgeons all love money and the fact of the matter is the medical industry wants to get paid at the time they render medical services. They know if they don’t their chances of getting paid dwindle down. This means more debt for you and less debt for them. To be completely fair here doctors are not in the lending business but the fact is most offer financing and accept credit cards which can get you in financial trouble should you spend more then you can repay.

7. Saving too little or not at all. I have preached the importance of saving money for many years and no matter what you do for a living it is imperative that you save something each and every month. Whether you are a low paid clerk at a convenience store or a highly paid lawyer it is important that you same something each and every month. There are many reasons why it is important and financially responsible to save money. Ideally you want to have a minimum of 6 months of living expenses saved up in case something bad happens such as you are laid off, are fired, are ill – sick, get divorced. An old saying that is very important goes “pay yourself first”. Do it now and keep it up and when you need money for an unexpected emergency or problem you will be safe. Besides nobody in their right mind ever regretted having extra money in the bank.

8. No money communication skills / has a history of leading to #2 which is divorce.
It is important to communicate with your significant other – spouse about finances. Be honest and keep those lines of communication open and discuss financial goals and spending habits with your partner – husband or wife. If you are a saver and your partner is a spender you will want to discuss a financial strategy that will give you both what you really want. Know what credit accounts – credit cards you each have and promise each other to be completely honest about what each of you spends to avoid any unpleasant surprises.

9. Banking on a windfall / spending before you get paid. Spending money right now sometimes may feel tempting even before you get paid. The attitude of tomorrow will always come may get you in real financial trouble if you are not careful. A planned bonus from your job may not always come into play. The extra work you expect to come may not come, then what? The financial lesson here is do not spend the money until the money is physically in your hands or in your bank account.

10. Financial illiteracy. Far too many people don’t understand how money works, how money grows, how interest rates function or how to save money and invest for their future. Some people don’t even know how to balance their checkbook. Generally speaking schools do not teach this. Perhaps your mom and dad never sat you down and explained this to you. Regardless it does not matter. What matters is you are responsible for your life, your future and your money. Financial mistakes can get expensive fast and can easily become complicated to resolve. The bottom line is pay attention, get educated and learn and get in the driver’s seat of your life and take control and set some financial goals for yourself.

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