John SchneiderWhen the topic of credit card debt came up on the Adulting editorial calendar, it only made sense to assign it to one-half of the Debt Free Guys.
In case you’re not familiar, my husband and I acquired $51,000 in credit card debt despite having years of experience in financial services. The reason we amassed that impressive total was that we were living and spending unconsciously and trying to make up for years of insecurity and self-doubt.
Our story is just one example of how people find themselves in more debt than they can handle. There are numerous reasons why people get into debt. Below is a list of what to look out for so you can avoid getting into debt yourself. And if any of these describes your story, know that there is a way out.
Don’t know their financial goals.
It’s my belief (and my husband’s) that more people are in debt than there needs to be because they aren’t clear on what their financial goals are.
It’s like knowing your destination when you’re in the car. The very first and most important thing you need to know is where you want to go. You can have the nicest car, years of experience driving, and it may be a beautiful, bright, and sunny day. But if you don’t know where you want to go, you’ll never get there.
This issue was my challenge. I didn’t know what my financial goals were and so I spent my money on any and everything. I sought short-term, easy satisfaction rather than long-term, secure satisfaction.
Don’t know their life goals.
The sister reason why people get into too much debt is that they aren’t aware of their life goals. Financial goals and life goals are not synonymous.
For example, our stepson just graduated high school. He recently asked for help to create a plan to ensure he’ll be financially secure, not necessarily wealthy, but stable. Financial security is his financial goal. After doing some exercises with him, we’ve since attached a dollar sign to what financially secure means to him and how to get there.
His life goal is to be an artist. He’s currently interested in videography and photography and is going to college for photography. He knows there’s a chance he won’t make a fortune in photography, but in that instance, his financial goals will support his life goals.
Without knowing what you actually want and developing a strategy to get it, you’ll go in any direction the wind takes you. Have you met people like that? Every time you meet them, they have a new goal, they’re moving elsewhere, they’re focused on something new.
Try to keep up with the Joneses.
It is challenging to live in such a consumption society. Everywhere you turn, someone has something newer and nicer than you. Whether it’s your neighbor or the guy on television who you want to be like or be with, it’s easy to get sucked into competitive consumption.
My sister and brother-in-law experienced this in their neighborhood. Theirs is an interesting case study. They lived in a quiet area full of homeowners about their age and children all about their children’s ages. They were all middle-income earners, all within the same income bracket.
Sure enough, when a neighbor did an upgrade to their home, suddenly several other neighbors did upgrades. When someone bought a new car, suddenly there were new cars all over the neighborhood. It all ended finally when one couple said they had to move away because the competition was hurting them financially.
Trying to keep up with The Joneses is like trying to live someone else’s dream. In either case, you’ll never achieve true happiness if you’re living someone else’s life.
They don’t know how to manage money.
Most of us never learn how to handle money. It’s a major disservice of our school system. We motivate and encourage our students, regardless of student loan debt, to get the best and highest job possible, and yet they don’t know how to manage their money.
Being financially secure is not contingent on how much money you earn, but how you handle the money you do earn. With the accessibility of the internet, there is a host of financial information at anyone’s fingertips.
They live and spend unconsciously.
This issue is synonymous with sticking your proverbial head in the sand. Often people live and spend unconsciously because taking the time to learn about their financial situation would mean they’d have to live and spend better. Whether they earn too little income to support their lifestyle or are trapped in an increasing cycle of amassing debt, they continue not to pay attention because it’s easier than addressing the truth.
Unfortunately for many, they learn Stein’s Law the hard way. That law says that if something can’t go on forever, it won’t. Stein’s Law is why most of the emails my husband and I receive are from people who are about to file bankruptcy or have reached retirement age and can’t retire.
They just divorced.
Divorce can be paralyzing to one’s life and finances. No part of divorce is fun, and it can leave both parties bruised emotionally and financially.
Not only is divorce itself expensive due to legal and court fees, but the division of assets rarely seems fair to both sides. The compound effect is that contractual obligations, such as requirements to repay debts, don’t disappear when you divorce.
Over 75% of Americans are in debt. It’s logical to conclude that 75% of couples in America who get divorced also have debt. Those debts must still be repaid despite the status of your marriage.
They have unexpected or large medical bills.
Healthcare in the United States is not getting cheaper, and a health scare or issue can easily wipe out one’s life savings. Even with an increased usage of HSA accounts and access to retirement funds to cover medical expenses, the wrong ailment can ruin one’s financial life.
For this reason alone, more Americans need to have an emergency savings account. But, with the estimation that 47% of Americans would go into debt if they had a $500 emergency, we have a long way to go.
They have an addiction.
People don’t make logical decisions when they have an addiction. You might automatically assume that this point is about gambling. To be sure, gambling does ruin a lot of people’s financial lives. They lose life savings and acquire numerous, even sketchy forms of debt.
This point also applies to people with drug and alcohol addiction who may make poor financial decisions that can cause them to acquire debt. It’s easy to get wrapped up in letting debt subsidize your addiction.
They don’t understand how credit cards work.
In part, because many people don’t understand money, most people don’t know how debt works. We receive too many emails from people saying that they weren’t aware that their interest rate could increase. They assume that the only reason their credit limit increased was that they’re doing well financially. They assume that the only reason they were offered a credit card was due to their creditworthiness – because they’re doing well with their existing credit cards.
That’s simply not true.
Just as with purchasing investments, it’s important for people to understand the nuts and bolts of how credit works. This is where reading the fine print helps and reading personal finance blogs that you can trust helps even more.
They’re unemployed or underemployed.
Even though the economy has been recovering since 2008, and wages are increasing, too many people are unemployed or underemployed. The economy is changing, and more jobs are being automated.
It’s incumbent upon American workers to increase their skill-sets and diversify income streams. This is one of the reasons why I recommend to everyone –everyone – to start a blog. Regardless of your career or skill set and regardless of what direction you want to take your career, a blog is a critical component of future career and financial success. Some people, in fact, think having a blog is more important than having a resume.
These are the top 10 reasons why many people find themselves in more debt than they can manage. Once you know what to look out for, it’s easier to avoid the mistakes. If you see yourself in one or more of the reasons above, now that you know your problem, you’ll more quickly remedy it.
Have you experienced one or more of the reasons above? Were you able to climb out of debt? We’d love to hear about it in the #Adulting Facebook community.
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