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Why are people in debt?

  1. Cherrietgee profile image77
    Cherrietgeeposted 5 years ago

    Why are people in debt?

    I know that people are in debt because they spend more money than they make, but I want to know the specifics about why and how people end up in debt. I'm not asking for anyone's personal information, just the things people do (decisions they make) that result in financial troubles.

  2. ackman1465 profile image61
    ackman1465posted 5 years ago

    Cherrie:  I can't resist to ask:  Are you a sitting member of the House of Representatives, or the Senate?

    1. Cherrietgee profile image77
      Cherrietgeeposted 5 years agoin reply to this

      No. I'm writing a hub and want to compare my lists/reasons with those of others.

    2. ackman1465 profile image61
      ackman1465posted 5 years agoin reply to this

      Whew!!!  ... I asked because it seems that many/most Congresspeople are unawares of how and why debt comes to exist...

  3. PageC profile image61
    PageCposted 5 years ago

    A major reason for bankruptcies in the U.S. is because of health issues.

    Another big factor may include job loss. A family may have bought a house based on two incomes, and if they lose one income, they might not be able to keep up on their expenses.

    Other reasons people fall in to debt may be shopping in order to help themselves feel better. Other people may not take the time to calculate their earnings and expenses, and wind up charging more than they can afford.

    1. Efficient Admin profile image92
      Efficient Adminposted 5 years agoin reply to this

      Perfect answer! Voted up.

    2. Cherrietgee profile image77
      Cherrietgeeposted 5 years agoin reply to this

      Thanks, PageC. I thought of your first and third reasons, but I never thought about the middle one.

    3. profile image0
      Deb Welchposted 5 years agoin reply to this

      All good and true.

  4. LandmarkWealth profile image80
    LandmarkWealthposted 5 years ago

    I can tell you after 15 years of personal financial planning that sadly in the vast majority of cases I have seen it is the result of little more than people choosing to live beyond their means.  Most people put off saving far too long to buy non-essential items.  Think back to generations ago.  Instead of the family sitting in the living room watching TV, they listened to the radio.  But they didn't have two or three radios in the house. How many familes of four have one TV in the house now ???  Today it's simply to common for too many people to prioritize in the wrong order.   It is nice to see each generation  do a little better.  But it has to be earned.  The vast majority of the wealth in this country is held by those over the age of 50.  That is because it takes time to accumulate through hard work and living within your capability.  Unfortunately far too many Americans now expect to start at the top or just live so much for today that they simply don't even consider tommorow.

    Another issues is the tax code.  We tax income at higher rates when you achieve more in earnings through work or interest on your savings, yet we give you a tax deduction for mortgage interest.   It is simply lopsided.  We discourage wealth creation and incentivize debt creation.

    1. MarleneB profile image96
      MarleneBposted 5 years agoin reply to this

      I, shamefully admit, I was in debt for a while because I lived beyond my means - going on exotic vacations, having the best of everything. Putting it on the credit card. It finally caught up with me. Now, I live a simple and pleasant life.

    2. Cherrietgee profile image77
      Cherrietgeeposted 5 years agoin reply to this

      Thanks for the information. I might quote you and link it back to your profile...if I can figure out how to do that.

  5. profile image0
    digitrocksposted 5 years ago

    Hi Cherrie,

    Another possible reason for debt is student loans.  There's been a lot of discussion about that lately: http://www.nytimes.com/2012/05/13/busin … -debt.html

    1. Ari Lamstein profile image80
      Ari Lamsteinposted 5 years agoin reply to this

      Good point digitrocks.  The first decision that many Americans make as adults is to take out large student loans at age 18.

    2. Cherrietgee profile image77
      Cherrietgeeposted 5 years agoin reply to this

      Good one! How in the world could I forget about that!?!?! I feel like I'll be paying mine off until I'm well into my seventies...I certainly hope that doesn't happen, but that's how I feel.

  6. profile image0
    Larry Wallposted 5 years ago

    There are many reasons and most have been named, living beyond your means, poor money management, losing a job, etc.

    You have to start planning the day you finish high school, if not before. You have to learn the value of savings, you have to start studying planning, you have to set goals, realistic short term and mid-term goals and desired long term goals.

    My parents were always broke. My mother handle the money and did a terrible job. My father got a decent retirement and Social Security and left some life insurance for my mother, but she ran out of money before she died.

    As many of you know I lost my job of 22 years about 17 months ago. I am drawing unemployment, but without that, we would be all right--a little austere for awhile, but all right. Planning is the key and you cannot start too soon. I wished I had started earlier.

    1. Cherrietgee profile image77
      Cherrietgeeposted 5 years agoin reply to this

      Thanks, Larry. I'm taking your advice and example to heart.

  7. rhammond64 profile image55
    rhammond64posted 5 years ago

    Aside from unforeseeable life events, like health issues, the most common reason for financial troubles are twofold.  Not planning for emergencies, and living beyond your means.  It's a troubling fact that if you were to ask 20 people, it is likely that 19 of them would not be able to tell you how much money they bring in per month and how much they spend.  People don't live on a budget.

    Budget is a dirty word, but can actually be very liberating.  The simple exercise of writing down on paper your monthly income and expenses (recurring bills) can be very enlightening and you'll find out exactly how much spending money you actually have and help you to manage your spending so that you don't have more going out than coming in.  You may also find that small cuts can make a big difference.

    Secondly, it is critical to establish a rainy day fund.  That is make a goal to set aside at least $1000.00 in a separate savings account so that in the event of an emergency one does not have to resort to credit cards or payday loans etc.

    I highly recommend reading Dave Ramsey's Total Money Makeover    
    http://goo.gl/b8McL as it does a great job of explain the situations / behaviors that lead to debt but also gives a clear plan of action on how to eliminate it.  I have lived using this system for more than 4 years, have eliminated virtually all of my debt and didn't feel like I was sacrificing anything.

    1. Cherrietgee profile image77
      Cherrietgeeposted 5 years agoin reply to this

      rhammond64, I was one of those people who thought that budgets were dumb. When I actually kept track of my monthly spendings and realized just how much money I was spending on frivolous things, I really made some changes. Thanks for sharing.