Have you every stopped to consider why people are struggling with more and more debt these days? With the many number of ways to earn money, how can it be that so many people still live under this bondage? As someone who is able to think about early retirement because I don’t have any debt (none at all), I am often surprised by the excuses that people give for living in debt. While I would like to think that anyone can get out of debt, there is one cause of debt that will make it almost impossible for them to get out.
The Typical Excuses People Give for Living in Debt
People give excuses for bad habits all the time. When it comes to staying in debt, this is no exception. Have you ever heard one of these?
“I am taking out loans to get through college. I will have a higher paying job that will allow me to pay it off.” While many people are forced to graduate from college with the financial challenge of paying back school loans, it doesn’t make it okay. In fact, going to college does not guarantee a higher paying job. The bad economy is forcing many college graduates (and some of my friends) to work at Starbucks for over a year while they look for a job.
“I am trying to leverage my money for my investments.” While taking a loan out for more secure investments like real estate may be a great idea, it is still a risk. There are other individuals who borrow money to invest in the stock market, hoping that their stock will increase and they will make it big. The only problem is that they are not only gambling their money, but the bank’s money as well. Guess who is responsible for that money if the stock falls? I’ll give you a hint – it’s not the bank.
“I need a reliable car to get to work. I don’t have the money to pay cash for it and I would rather take out a loan so that I don’t have to worry about breaking down.” I also have a lot of friends that believe that a brand new car is necessary and look at the cost of the car only by the monthly payments. They fail to consider what would happen if they try to sell the car when owing more than it is worth.
By making excuses for living in debt, individuals or families not only add more stress to their lives, but dig a deeper hole of debt. With high interest rates, it can become close to impossible to get out of the red. Yet, I would venture to say that while these excuses are bad, it doesn’t compare to the number one reason why people can’t get out of debt.
Why People Can’t Get Out of Debt
The best way to illustrate the main cause for being stuck in debt is to introduce you to friends of mine. They currently own a house with two mortgages. They took out a second mortgage to pay off some credit card debt before the housing market crashed. Now, they owe more than the house is worth and to make matters worse, they had a variable interest rate mortgage. Their mortgage payments went high in the
worst of the recession around the same time that the husband’s employer was laying off employees. The company ended up just cutting his hours for a few months and they were able to just survive, but not without racking up huge amounts of credit card debt again.
While up to this point, someone could certainly understand why they are having trouble. There are a couple of unpredictable contributors to their bad financial situation. Sometimes things just happen and there is only so much that you can do, right?
Here’s the icing on the cake, though. The primary reason that they were unable to make their payments without going further into debt is that they have a spending problem. They have a hard time determining what is absolutely necessary, even in the worst of situations.
- Example #1: It was just a couple months ago that I talked to the husband and he informed me that they were just breaking even. They were starting to pay off some debt with the little positive cash flow. Everything sounds great until two days later and I see a facebook status about buying a new IPAD. Necessary item? I think not! To make matters worse, I found out that not only could they not afford to pay for the IPAD upfront, but they are financing that purchase.
- Example #2: A few months after this, when I thought they were finally learning their lesson and getting back on track to paying off their debt, I come to find out that they are buying a new Apple Macbook. Their computer has been on its last leg for some time now and they “need” a new one even though their IPAD is still functional.
It’s in situations like these that I am reminded that the number one reason for debt is over-spending and having difficulty distinguishing what is a necessary purchase and what isn’t. Unfortunately, consumerism tends to trump any sort of financial responsibility and throws everything off course.
What do you think is the main reason people stay living in debt?
This post was written by Corey, a staff writer from 20’s Finances and Passive Income to Retire. He writes about his financial goals (like retiring by the age of 27) so that his readers can make smart choices and achieve financial security early in life.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.