The general rule of thumb is, if you keep spending money with reckless abandon, chances are that you will get into debt. Well, if we were to take national debt into consideration, it’s correct to say that each and every single one of us is indebted in one way or the other. However, the focus of this article is personal debt and incisive look at some of the reasons as to why many people get into debt. While overspending is the first thing that comes to mind, there is no denying that emergencies such as medical bills, high interest charges on loans, and even identity theft are some of the common reasons people get into debt. Some people get into debt because of imprudent financial management while others are simply unlucky. With that said, what are some of the reasons people get into debt?
The rule of thumb is that your assets must always exceed your liabilities. In other words, you should only spend a fraction of your income on liabilities and expenses. When people overspend, getting into debt is assured as there is no way you can remain financially sound when your expenses exceed your income. The objective should be for people to live within their means.
Exorbitant interest charges
Look at it this way. You are in need of a loan and go ahead to apply for one. You are very sure that you will be able to service the loan without any hitches. However, somewhere in between, you lose your job or even become incapacitated and unable to service your loan. Alternatively, most credit cards we use today attract interest charges in the upwards of 20% which means if not properly managed, could lead people into debt.
Most financial pundits opine that one of the fastest ways to get into debt is medical costs. When you are sick and bedridden, you keep spending money without working for an income (unless you are a tycoon with a business empire that earns you money even if you are not productive). If a person were to undergo a major and expensive medical procedure which their insurance can’t cover, chances are that they will get into debt!
Unexpected life changes
Losing a job, getting involved in some sort of accident and getting incapacitated affect our ability to get an income or even sustain the kind of lifestyle we were used to. When you lose a job, you are forced to adjust and even borrow as a means of sustaining yourself. As such, if you didn’t have an emergency fund and such an unexpected life change occurred, chances are that you will get into debt pretty soon.
People start out with gambling as a hobby and before they know it, they become hooked to it. We’ve heard of people who borrow money to gamble while others even sell their assets simply to feed off their addiction. There are countless cases of people who lost everything and even filed for bankruptcy as a result of gambling addiction.
Cases of identity theft have been on the rise in recent years and have seen a good number of people get into debt unknowingly. When we talk about identity theft, we are generally referring to a situation whereby a person opens or registers an account in your own name and goes ahead to pile up significant debt. In fact, some people learn that they are victims of identity theft too late to salvage the situation.
To sum it up, the above reasons are not the only cause of debt. Some that we have not shed light on include inflation, poor money management, poor investments, and taxes and so on and so forth.