By  Posted on Mon Jul 19, 2010

Top 10 Most Common Causes of Debt

With things as tough as they are in the current economy it might seem like everyone is in some sort of debt. Reasons for debt range from lost jobs to poor investments.

Here are 10 of the most common causes:

Top 10 Most Common Causes of Debt1. Low Income

This is one of the largest destructors of savings. It affects people who have taken a pay cut, or who expected higher paychecks. An individual’s new (lower) salary often does not align with the lifestyle they were used to. An important thing to reconsider when you take a pay decrease it to re-budget yourself as quickly as possible even if it is a temporary decrease in pay.

2. Bad Budgeting

Managing money appropriately is an important skill to learn as early as possible. In fact, poor money management can be attributed to most scenarios on this list. It is crucial to constantly analyze your income and spending habits in order to budget yourself appropriately. Even those that are already in debt can greatly help themselves by learning to manage their money.

3. Divorce

As if Divorce wasn’t unpleasant enough, it is also one of the top causes of debt. Between hiring lawyers and the settlement, it can be a very pricey life change. A simple solution is to not divorce, but this is typically not an option. There are other things you can do to alleviate the costs. A few options are prenuptial agreements, looking into low-cost legal help or get the IRS to pay for child support.

4. Depending on Credit Cards

Do not pay more than you have. It’s as simple as that. If using your credit card is unavoidable make sure you buy something you can pay off within the month. Check out this article on Four Steps to Avoiding Credit Card Debt.

5. Gambling

According to MyAddiction.com, 85% of adults have gambled at least once in their lives and 60% have gambled in any given year. Unless you have expendable money lying around and absolutely no history of addiction in your family, gambling is an unnecessary and expensive luxury. For help with gambling addiction visit: The National Council on Problem Gambling.

6. Illness

Unfortunately, some expenses are unavoidable. Medical expenses can be a huge strain on a budget and debt is usually just around the corner. Paying with cash as often as you can might you keep up with your expenses, and some places will offer a discount to those who pay cash up front. Insurance companies also have an appeals process to have certain things covered. Make sure to look into all your options before incurring debt.

7. Little or No Savings

Always preparing for the worst is not the most optimistic outlook on life, but it is a smart one. Maintenance issues on your car, home and electronics can add up and come about unexpectedly. It is important to have an emergency fund set up.

8. Lack of Financial Communication

Talking about money can be an uncomfortable topic for many people. It is still an important issue that should be addressed between parents and children, spouses and families in general. Many individuals struggle with financial planning. Having strong communication habits within a family can catch the problem early and prompt the individual to take steps to fix it.

9. Spending Future Money

It is best to wait to spend money you have as opposed to money you think you will be getting. The economy and the job markets are unstable so there is always some risk attributed with earnings being lower than projected. Hold off until the money is actually in your bank account.

10. Not Knowing the Basics

Although studying up on finances may not be everyone’s favorite topic, it is important to know basic principles of personal finance. It is easy to find a variety of ‘How To’ articles on the Internet that can help you get more acquainted with the basics of personal finance.

For those already in debt, there are many debt management tools online that can help you on the road to financial recovery. For now, use the items on this list as red flags of things to think about when making a financial decision.

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