Maybe you can relate to this. You look at your credit card statement and suddenly, you see tons of purchases that drove up your bill and pushed you further into debt. Yet, you don’t really recall spending so much money.
That’s what debt looks like to many people. They don’t realize they’re going into debt until they’re deeply gone, so to speak. August Funding sees this happening all too often.
The good news is they also see people get out of debt once they learn what it is they’re doing to accumulate debt in the first place. Much of the time, the reasons are actually pretty simple. In fact, we’ve identified many of the main reasons why Americans are so in debt. Here are four of the primary reasons.
1. Income/ Job Loss
You often don’t know how much you rely on your income until you have an economic downturn, like a job loss. A loss of income counts as one of the primary factors that force many Americans to go into debt.
Sometimes, people have some warning that an economic downturn is coming. For example, they heard on the news that their company has announced layoffs.
However, many times there are no obvious warning signs. These folks just come to work one day and find they have no job.
The best defense against this kind of debt is to put together a long-term emergency fund. This fund should contain enough money to get you through at least three months of unemployment. It’s better if you have six or more months of income stashed away. Doing so helps to push back the onset of debt and other economic disasters that go hand in hand with job loss.
2. Terrible Spending Habits
Do you stop at the deli for dinner nearly every night after work because you don’t feel like cooking? Do you put spur-of-the-moment purchases on your credit card without thinking about it? Do you have money saved for a big emergency, like a major car repair? If not, then you may have accumulated debt because of bad financial habits.
The way to avoid this debt-creating activity is to create a budget. When you set aside money for events, like a doctor’s visit or a car repair or even your entertainment activities, you won’t spend money that you don’t have (in theory). A budget reminds you where your money needs to go. The savviest of budgeters put away money for not only their immediate bills but also those unexpected bills that can often be the most damaging.
Eventually, if you have enough money saved for such occasions, you won’t have to worry about getting into debt due to events and obligations that you haven’t planned for. If you’re not sure how to create a budget, then talk to a financial services rep at the financial institution of your choice. August Funding reminds that this sort of proactive budgeting can help prevent debt before it happens.
3. Keeping Up with the Joneses
In the 90s, a book came out called “The Millionaire Next Door.” The book highlighted the fact that many people spend their money on what’s called “conspicuous wealth.” That’s when they buy flashy cars or big houses, mostly to impress their neighbors.
But as the book’s authors Thomas J. Stanley and William D. Danko point out over and over again, most of the time seemingly wealthy people actually have a ton of debt. They use their credit cards to create the illusion that they have more money than they do.
If you’ve fallen into this trap, it’s in your best interest to stop trying to keep up with the Joneses. Aside from the fact that it makes you poorer, it’s also likely that the Joneses are just as broke as you are.
4. Spouse with Different Spending Habits
Money counts as one of the most difficult challenges in a relationship, at least for some couples. If you and your significant other don’t land on the same financial page, then you’re ripe for debt and other financial issues.
To ensure that overspending doesn’t become a habit in your relationship, it’s important that you and your S.O. sit down together and talk about what kind of financial goals you have as well as how you’re going to tackle your debt. Otherwise, debt will continue to be an issue, possibly for the remainder of your relationship.
Final Words on Americans and Debt
If you’ve been in debt most of your life, it can feel like an inevitable fact of life. However, most people who are debt-free are not debt-free due to a single factor, like income. Instead, the people who know how to handle their money know that putting unnecessary items on credit cards, frivolous purchases, and even their significant other can all contribute to their debt.
Therefore, they avoid those habits at all costs. Fortunately for people who still have too much debt, the habits of the most financially savvy among us are habits we can replicate. When we do, our finances and our lives improve significantly because of it.
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