We all know the most common reasons why people get into debt. In most cases, unsecured loans or over-used credit cards cause a high level of debt. In some cases, they seem to have a habit of borrowing money from people.
It seems puzzling why so many people are carrying such a high level of debt. Anyone who has a decent job should be financially secure, and yet, so many people live paycheck to paycheck and seem trapped in a debt cycle.
Too often, the main reasons why many people are in debt is because they choose to be. In most cases, blaming others for your plight is unwise because you made most of the choices that got you there. The most common reasons people find themselves deep in debt are due to poor budgeting and not really knowing where your money is going, but there are many other causes for debt that many people don’t really think about. Here are eight of the most commonly overlooked reasons people find themselves deep in debt:
1. Keeping up with the Joneses
This is actually a fairly common reason why people end up deep in debt. Although many people don’t seem to think about it. Trying to keep up with others in your social circle with your purchases is a significant reason people end up causing them to buy many things they don’t need. The problem seems to have become more acute in the era of social media, causing people to buy things they don’t need just to impress others. And if they are already living paycheck to paycheck, chances are, they are using credit cards to buy that stuff. It’s a simple fact that spending money before you have it will never get you anywhere right.
2. High-Interest Charges
This is a cause of personal debt that people often overlook. They often use their credit cards with the intention of paying the bill with their next paycheck, but then figure the interest won’t hurt them. Unfortunately, credit cards often come with interest rates that run higher than 20 percent, which can often make it impossible to repay everything they owe. If your balances are high enough, the interest charges and the minimum amount due are close together. Debtors should understand they’re not paying down the principle, which means the balance will never go down.
Another rather surprising reason many people find themselves in debt is that they’re addicted to gambling. For some people, gambling is pure fun and games, and they treat it as pure entertainment. However, others can become addicted to the rush, and they can ruin their lives by putting themselves deep in debt because they often borrow money or use credit cards to fund their habit. Many people even convince themselves lightning will strike and they’ll make a million dollars to get them out of trap.
4. A Lack of Insurance
One surprising reason many people and businesses find themselves in debt is related to gambling. In a way, because it has to do with taking chances and not carrying the insurance they need. For individuals, this includes health insurance, without which many families can find themselves in deep trouble when an emergency happens. In fact, the most commonly cited reason for personal bankruptcy is medical bills. Likewise, if a business owner puts off buying liability insurance or some other type of insurance, they could face a devastating financial loss if there is a lawsuit or an accident.
5. Identity Theft
This is an increasingly common reason some people find themselves in debt. Identity theft occurs when someone illegally opens up one or more accounts in another’s name and proceeds to run up a significant amount of debt. When this happens, the victim is often caught unaware, and they are usually liable for the debt that was incurred by someone else. Identity theft continues to increase in frequency. Look at what has happened at some large retailers in recent years. Even the credit reporting agency Equifax has seen a major breach. For that reason, it’s always a good idea to regularly check your credit report and catch problems before they happen.
6. Expanding Families
This is an often overlooked reason for a high level of debt. Too often, single and married people believe they have plenty of extra money until they have children. Children cost money, what with diapers, food, healthcare and of course, child care services. Often, parents are left having to decide between continuing to work and pay for childcare, or foregoing one income, so they don’t have to pay for childcare. A lot of new parents are bewildered by the increased cost of a child and find themselves asking where all their money is going.
As much as people complain about the amount of taxes they have to pay, the effects of taxes on financial health. Whereas federal taxes have either dropped or stayed flat for the past decade, state, local and municipal taxes have been going up for years. This leaves many people with less disposable income, which leads to an accumulation of debt.
8. A Lack of Financial Knowledge
Another often overlooked reason for high debt is the lack of financial knowledge many people have. Many people simply don’t have the financial experience or education needed to make good financial decisions. They make bad investments because they don’t understand how money works, and they often take out loans they can’t afford. This is also one reason so many overuse credit cards.
Being aware of these often overlooked reasons for debt can make a big difference and keep you away from massive debt. It helps to understand more of what you don’t know and to adjust your spending habits accordingly.