4 Reasons People Stay In Debt (and What To Do About It)

People go into debt for many reasons. Some of those reasons are beyond their control, such as an illness that leads to expensive medical bills, or a job loss that lasts a long time.

In other cases, people go deeply into debt and need debt relief because of the decisions they make. This doesn't mean it's their fault or that they did anything wrong. It’s more likely that they just never had the chance to learn and practice a better way to manage money.  

If you're doing things that cause you to get into debt—and stay in debt—you could face serious financial trouble. But you can change course. That's why it's important to understand the top reasons for debt, and what behaviors you can change to help escape the debt cycle for good. 

Common Reasons for Debt

Here are four of the most common reasons why people get into debt and stay there. 

1. Not budgeting

Even if you’re not a particularly spendy person, it’s easy to overspend if you don’t have a budget. So the first step to improving your finances is being honest with yourself about where you currently stand. Some people in debt feel uncomfortable talking about money. It’s hard to face those numbers and take those first steps toward a new financial future. 

Facing your finances head-on is the best way to turn them around so you can have money in your pocket.

Knowing the state of your finances and setting realistic goals is crucial to getting and staying out of debt. You have to know exactly how much you owe, where your money is going, and find areas where you can improve. In other words, you need a budget.

Start by determining your exact income (or the average, if your income is variable). Once you know what you realistically have to spend each month, sort your expenses into two categories: needs and wants. Next, create a budget that prioritizes saving and debt payoff, and  try redirecting some of the money you’ve been spending on wants toward these goals. When you have a manageable system in place and get into the habit of following a budget, paying down debt gets easier.

2. Living above your means

Facts are facts. Culturally speaking, we’re spenders here in the USA. Who wouldn’t want to drive a fancy car, or live in their dream home? Most of us do, but the question is whether we have the resources to do these things. While there’s nothing wrong with having desires, one common reason people stay in debt is that they buy, whether they can afford it or not. 

It may be for the sake of appearance, to keep up with the Joneses, or for a whole host of other reasons. But prioritizing the present over the future is a very common problem. It’s called present bias by psychologists. It means that many of us tend to prioritize our current wants over our future needs.

Going into debt for instant gratification can be financially and emotionally stressful in the long run. The good news is that to break this habit, you probably don’t need to deprive yourself of everything. But you'll need to adjust your lifestyle to one your finances can comfortably support.

The solution? The secret is in the budget you just created. Deciding how much you can comfortably spend on your wants can help ensure that you don't get trapped in debt forever, and have money to accomplish your financial goals. 

It seems hard to live on a budget if you’ve never done it before. It’s easier once you get started, and even more so over time. A budget isn’t a chore. It’s a list of what’s important to you, so that you can make sure that’s where your money goes before it goes anywhere else.

3. Ignoring the unexpected

There’s no question that life can be unpredictable. The more we prepare for surprise expenses today, the better off we’ll be in the future, especially when (not if) life throws curveballs. 

There are countless stories of people racking up debt because they fell on hard times. In fact, the top three sudden life events that cause people to file for bankruptcy are:

• Medical issues that lead to medical debt

• Job loss

• Divorce or separation

Most of us can understand how these events could lead to debt.

The solution? Expect the unexpected. Having an emergency fund can help you prepare for life’s expenses so that avoiding debt is easier even when things go wrong. No matter how tempting it can be to spend now, your future self will thank you for delaying instant gratification in support of your long-term financial security.

4. Debt can snowball once you fall even a little bit behind

Those emergency funds are hard to come by. About half of us don’t have savings. In a perfect world, we’d all have enough money in the bank to cover three to six months’ worth of expenses. In reality, one big bill could throw your finances into a tailspin. 

If you’re already struggling or just barely keeping up and an expensive problem pops up, debt can rain down. 

For example, if your car breaks down and you can’t afford to get it fixed, you might have a hard time getting to work. Not getting to work could lead to lower income or even ‌losing your job. With no job, you can’t afford to get your car fixed (or even pay your other bills), so you fall farther and farther behind. Fast. It’s easy to understand why some people have to put everyday expenses like groceries and utility bills on their credit cards. 

Cash reserves are your buffer against financial disaster when a big expense rears its head.

Life in America is expensive. You might feel like you’re alone if you’re struggling with debt, but you absolutely aren’t. Millions of other Americans face the same problems.

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Get Help Breaking the Debt Cycle

If you’re ready to join the ranks of people who stay out of debt, there's help available. Freedom Debt Relief can help you understand common reasons for debt, and can help you learn about your options for dealing with your debt proactively through our debt relief program. Our Certified Debt Consultants can help you find a solution that can put you on the path to a better financial future. Learn how Freedom Debt Relief works to find a solution today.