If you’re taking the time to read this, you probably already know personal debt is a serious problem in the United States. The statistics bear this fact out. Last year, total credit card debt reached a record high of $1 trillion. The average American household now carries a balance of $16,000 on credit cards from month to month.
Americans spend years dealing with these debts: the credit card fees and interest expenses that accrue, the minimum monthly payments that continue to increase but put little to no dent in card balances, the time spent each month tracking own and paying all those debt bills, and the missed opportunities because of these things. For most people, debt isn’t a short-term problem; it often takes years to get out of debt and onto more sound financial footing. So, why are so many struggling with credit card bills and loan payments these days? Check out 10 of the top reasons people stay in debt.
1. Failing to Plan
There’s an old saying: people don’t plan to fail, they fail to plan. When it comes to debt, that couldn’t be truer. According to a study, less than half of Americans have a household budget. Without a budget, it’s difficult to regulate spending and savings each month, and Americans are reduced to using little more than intuition to make decisions on things such as monthly bills, retirement savings, and the purchase of big-ticket items. The statistics cited earlier clearly show that budgeting by the seat of their pants hasn’t worked out well for most Americans.
Without a budget, it’s extremely difficult to forecast how much money a household will need to sustain itself for the month, or how to best allocate an unexpected inflow of cash. As a result, people often rely on credit cards and other debt to help buffer them past the rough spots each month. If they don’t have the cash on hand to pay for something, they pull out the credit card instead. Additionally, lacking a larger plan for how to allocate financial resources, people without a budget don’t give much thought to how to pay back their outstanding debts.
2. Out-of-Control Spending
It’s easier than ever to spend money on consumer goods these days, and many people do so with abandon. Credit cards make it easier than ever to forego impulse control and simply purchase large and small consumer goods – from cars and boats to the most powerful laptop and latest tablet – when it would have made more sense to comparison shop or maybe even save up the cash for a purchase. In fact, having a credit card on hand will often lead consumers to make a purchase they’d have passed on if they had cash on hand.
Credit cards, in particular, have become a financial crutch for American consumers. Purchases using cash already earned is often a secondary option to people armed with a credit card. With everyone so willing to finance their everyday lives these days, it’s not surprising that people stay in debt.
3. Limited Cash Flow
Many people realize they’ve taken on too much debt and resolve to pay it off, only to find that they don’t make enough money to put a real dent in their credit card balances. Once borrowers have accumulated a significant amount of debt, the interest expenses and other fees they pay each month often offset much of the progress they make in attempts to pay it down. Most borrowers have other significant monthly expenses for things such as rent, utilities, insurance, and childcare, and they don’t have significant leeway to commit more toward paying down debt.
Some people manage to find remedies to mitigate the effects a limited income has on paying off heavy debt. They cut their discretionary monthly expenses back and commit the savings towards debt payments. Some people get a side hustle – a part time job, small business, or freelance work – and turn their spare time into extra income to help pay off outstanding debt. However, many aren’t in a position to work more or cut additional expenses, and their limited income can make it difficult to get out of debt.
4. Unemployment (or Underemployment)
Another reason why people stay in debt is job loss. If you accumulate significant amounts of debt while you’re working, then suddenly find yourself unemployed, it’ll be difficult to make payments on those debts. You’ll often rack up additional interest expenses and penalty fees while trying to remedy your unemployment situation. If you’re fortunate enough to find another job, you’ll likely find that your credit card balances have ballooned significantly.
Similarly, underemployment can also lead to significant debt accumulation. If you find yourself with a substantial cut in hours and a smaller paycheck, it may be hard to make much more than the minimum payment on your credit cards. You may also rely upon your credit cards to buffer you through the rough patch until your past income level is restored. Doing this will likely lead to high balances that take a long time to pay off, which is yet another reason why people stay in debt.
5. A Devil May Care Attitude
There’s another top reason why people stay in debt: complacency. It’s easy to pull out a credit card and pay for almost anything you need in life, from lunch to a new refrigerator. It’s certainly simpler than going to an ATM and drawing cash out. People are doing that to pay for everyday purchases, as noted previously. However, typically, people aren’t paying close attention to the balances they’re racking up until things are out of control.
It’s easy to become complacent when using credit cards so much in everyday life. Before you know it, those credit card lunches and app purchases balloon into thousand dollars in debt. If you’re equally complacent about paying down your credit cards balances – and about 30% only make the minimum payments each month – you can find yourself deeply in debt.
6. Living Beyond Your Means
Many people use debt to maintain a lifestyle beyond what their current income can support. They use their credit cards to purchase items they otherwise wouldn’t be able to afford. In fact, accumulating large amounts of credit card debt is commonly viewed as an indicator that a person is living beyond his or her means. If you find yourself needing to rely upon a credit card to pay your everyday expenses, such as utilities or groceries, you are likely living beyond your means.
People using credit cards and other loans to finance their lifestyle will often rapidly accumulate significant amounts of debt. Surprisingly, the people earning respectable levels of income are the ones that typically find themselves in this situation. High earners often have easy access to correspondingly high amounts of debt. They can qualify for credit cards with high limits, and they often have assets that enable them to apply for secured loans, such as a home equity line of credit. If they’re too liberal with using that access to finance a lavish lifestyle, they can rack up dangerous levels of debt extremely fast.
7. Failure to Adapt
Some people recognize they’re accumulating too much debt but nonetheless find themselves unable to change their habits. Unless they’ve received a sudden windfall, borrowers who desire to get out of debt often have to make significant lifestyle changes. They may have to cut back significantly on spending, get another job, consolidate their debts, or work with a debt settlement company. For many people, any one of these things is a bridge too far, and they’re unwilling or unable to make the necessary changes.
Change is hard, especially when it comes to money. If you’ve lived a certain way for a long time, it may be difficult to make the required sacrifices to pay down those credit card balances. Additionally, if your family or friends and others close to you maintain a certain lifestyle, it can be difficult to break with them in order to pay off your debt. Sometimes, people are simply too afraid to make the changes necessary to start addressing their debts. Regardless of the rationale, the inability to adapt to new financial realities is another top reason why people stay in debt.
8. ‘I Don’t Know How’
There’s another common reason why people stay in debt: they simply don’t know what to do to become debt-free. Despite surviving the Great Recession and the turmoil it brought a decade back, many Americans remain woefully ignorant about money matters. A study found that about two-thirds of Americans couldn’t pass a basic test of financial literacy; they didn’t understand how basic financial concepts affected them. Therefore, it’s not surprising that so many are struggling to deal with outstanding debt.
If you don’t understand how interest rates work – and how higher interest rates on some cards can lead to the rapid accumulation of high debt balances – it can be difficult to pay down your debts. There are debt counseling services available for borrowers who lack financial wherewithal and are struggling with high levels of debt. Many are nonprofits and offer their services at no cost. Unfortunately, many people don’t avail of these services.
9. Lack of Follow-through
Sometimes, people realize they have a serious debt problem, get help, and plan to resolve it. They may work with a credit counselor, or take more concrete actions, such as obtaining a debt consolidation loan to combine all their debts. However, when it comes time to implement the plan, they fail to follow through with it. Some borrowers may be unable or unwilling to make payments as required on a debt consolidation loan or debt settlement plan. Many other borrowers often lack self-discipline when it comes to debt, and take out new loans and credit cards even as they’re working to pay the old debt off. In any case, lack of follow-through is a serious issue, and one of the reasons so many people end up staying in debt.
10. Marriage Problems
Sometimes, you’re not the problem at all; instead, it’s your spouse. If your spouse and you aren’t on the same page when it comes to money, it can lead to financial problems down the road, including a high amount of outstanding debt in both your names. Managing finances together can be a major source of stress for married couples; in fact, money worries are the top reason why marriages end in divorce. In addition, it’s easy to comprehend how growing levels of debt can rapidly become a major source of friction in a marriage.
If spouses cannot see eye to eye when it comes to debt, there are options. The first and most important thing spouses should do with one another is talk about finances as well as how to manage them, especially if they’re accumulating credit card debt. Traditional counseling can help couples communicate about major issues they have with one another, including spending and debt. Finally, working together to choose a financial planner who specializes in working with married couples can also be a way to address problems with debt. However, many married couples fail to take any action whatsoever when it comes to money issues, which is a major reason why people stay in debt.
You Don’t Have to Stay in Debt Forever
Debt is a serious problem that many are struggling with right now. Heavy debt can limit your ability to enjoy life and take advantage of fleeting opportunities to make life better. Debt is a major source of stress for people as well. Yet, despite all the problems that debt causes, there are still many reasons why people stay in debt throughout their lives. It doesn’t have to be that way, though.
If you have a serious problem with debt, talk to a trusted advisor and start making a plan. Perhaps debt settlement services such as those offered at National Debt Relief can help, or maybe some other strategy makes more sense for your particular financial situation. Whatever state your finances are in, you should take that first step and get yourself started on the journey to being debt free.