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Where Does Debt Begin? 3 Mindsets to Guard Against

where does debt beginA Business Insider article ran several fascinating statistics on the topic of debt. One stat listed that 1 in 50 households that have more than $20,000 in credit card debt. That’s about 2 million US households that are in the red. Additionally, approx. 2 to 2.5 million Americans seek credit counselor help to avoid bankruptcy per year.

According to Annutto Law Office, the need for debt relief is non-discriminate. They state, “Anyone’s debt can get out of control and become impossible to manage, regardless of income bracket or lot in life. No one is immune to the possibility of getting in over his or her head.”

Where Does Debt Begin?

Most of us know that debt is bad and that we should not spend more than we make. But if this is common sense, why do so many Americans still find themselves in debt? What decisions or thought patterns do we make that lead us down a debt-ridden path?

Read on for three thought patterns to guard against if you want to be financially solvent.

1) That spending next month’s income is okay.

Ever done this? Calculated your earnings for the year and thought that equaled the amount you could spend? We’re all guilty. But this thinking is a fast track to credit debt. It lulls us into thinking that future money is safe to spend. The only money safe to spend is money in your bank. And even then, you need to account for monthly payments and sticking to your budget. Only buy things you can afford right now. This will likely mean using your credit card less. If you can’t pay it in one go, wait until you can.

2) That since you’re making more, you can spend more (aka, lifestyle inflation). 

You get a raise, and so you think that means you can afford additional expenses. Eating out once a week, or every other week, turns into eating out whenever you’re feeling too lazy to cook. Or ordering in when you forgot to pick up groceries.

When you get a raise, choices like this may no longer seem to be a big deal. Since you have the money—why not? But perpetual choices in this direction become a habit. Which can lead to higher and higher bills as you get accustomed to a lifestyle to match your pay. You think your money will always be there. But what happens when you get a pay cut or you get laid off? Or are faced with an unexpected expense that takes a huge cut out of your savings?

Spending habits do not magically disappear. Debt is often the result of not adjusting your lifestyle to stay in line with your income. The best way to avoid this trap is to not fall prey to lifestyle inflation in the first place. Live comfortably below your income ceiling so that you can take an income cut without a hitch.

3) That accidents or emergencies happen to other people, not you.

Perhaps you have a budget and you stick with it, but maybe you didn’t calculate a sudden out-of-state funeral you need to attend. Or a household appliance breaks down and its replacement runs upwards of $2,000.

Emergencies, repair work, replacements, etc., should be part of every good budget. If you know that a certain appliance will need replacing in a year, put a certain amount aside each month for it. Of course, for things that are hard to plan for, having a minimum of $1,000 socked away for a rainy day can save you from sinking into debt as discussed thoroughly here.

It pays to think of other possible and likely emergencies that you may face. Doing so can help prepare you for their eventuality. It will show you the importance of budgeting for these things, or creating an emergency fund for them.

By adjusting our mindset, we can also keep a better grip on our finances and the decisions we make that translate into either money spent or money saved.

Don’t let debt destroy you! Guard yourself against debt by avoiding the three mindsets above.



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.

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