How Did I Get So Much Debt?
There are a lot of things that can cause you to get in debt. Some of the top causes of getting in over your head are:
1. Reduced income/same expenses. Having one spouse out of work for an extended time, reduced overtime, or a missed bonus. All cause a reduced income, but the same expenses. Usually causing what wasn’t earned to be charged on credit cards.
2. Divorce. A natural extention of #1, but far more permanant. Not only are you learning to live on less, but you have new bills of attorneys, maybe child support.
3. Poor money management. Do you have a budget? Make one! Do you know how much money it takes to run your house for a month? You may be suprised to find out it is more than you take in in a month. It will also be very helpful to know that you have “X” amount of money left each month after paying the mortgage, car payments, food, etc. Now you know to never spend more than that.
4. Gambling. This is entertainment folks, not a way to make ends meet. The only people who will ever make money here is the house. It can be addictive, hard to stop and loans are freely available. Gambling establishments may be the only place you can mortgage your house while intoxicated and have it be legal. I’m sorry, I forgot — this is entertainment!
5. Medical expenses. Gaps in coverage, lapsed policies and increasingly costly alternatives make this a popular category. Just about every doctor I know now takes credit cards. If you think it’s for convenience, think again. The medical industry wants to get paid at the time service is rendered. They know that if they don’t, the chances of their getting paid drops.
6. Saving too little or not at all. The simplest way to avoid unwanted debt is to prepare for unexpected expenditures by saving three to six months of living expenses. With a savings cushion in place, a job layoff, illness or divorce will not cause immediate financial strain and increase debt. You always hear, “Pay yourself first.” Do it and it will grow and be there when you need it. No one has ever regretted having a savings cushion. Do you take advantage of your companies 401k? You will likely get a raise as they will match your contribution. Your contribution will be done with pretax money. Planned correctly I have see people make a contribution to their 401k and actually take home more money than if they had not.
7. No money communication skills. How can you not know what your spouse makes? I’m not talking about knowing they brought home $713.46 last week exactly, I’m talking knowing they make $19.25 a hour, and they usualy bring home $700 a week. Do you know a ball park balance on the checkbook at minimum? Did you talk about where you spent money recently, anticipated bills, and a plan to take care of it all?
8. Banking on a windfall. Living on next years COLA increase this year is no way to manage your money. COLA covers next years increase in the cost of living then, not living this year in excess. Living counting on grandma leaving you all her money is risky business. What happens if she falls for #5 and gambles it all away? What happens if she decides to leave it to the dog and not you? You have the credit card payments to live with now, and you will have a dog who eats better than you later. Don’t spend what you might not get tomorrow today.
9. Financial illiteracy. Many people don’t understand how money works and grows, how to save and invest for a rainy day, or even why they should balance their checkbook. The schools don’t teach it, your parents may not have sat you down and explained it. It doesn’t matter. You are responsible for your life and your money anyway. Ask questions, search the internet, read books.
Some good links to check out:
http://www.youngmoney.com/credit_debt/credit_basics
http://www.credit.com/c_home_c.htm
http://www.cccsintl.org/
http://www.nfcc.org/
http://www.masteringmoney.org/
http://www.divorceinfo.com/debts.htm
