Reasons that cause us to unwittingly fall into debt

Causes of debt

The gift of foresight has helped many individuals to avoid perilous situations and pitfalls. This ability is even more useful when trying to maintain a healthy financial reputation. Falling into debt is a situation that should be avoided as much as possible. Knowing some of the reasons or causes behind this situation may be very helpful for future decision making. These causes are diverse and far-reaching.

Retrenchment, unemployment or retirement
Adjusting to changes in finances is not easy, regardless of whether unemployment is planned or unexpected. Spending habits must be revised to ascertain if they are working or not.

Unemployment should not be a reason for individuals to rely too much on debt during this uncertain period. There are facilities such as the Unemployment Insurance Fund which assist with financial help.

Planned unemployment, such as resigning should mean that individuals have funds that are sufficient to tide them through for a minimum of a year. Retrenchment is unexpected as is not an easy thing to go through. Individuals may fall into debt unwittingly while trying to recover.

Lack of financial education
It’s important to instil a sense of financial responsibility in children from a young age. This prepares them mentally for the real world and for financial challenges which they may face. Effective financial management tools need to be passed on as a form of guidance. When there is a lack of education, individuals are more likely to spend recklessly, without consideration for the ramifications that accompany debt.

Reduced income and no change in expenses
This problem can arise due to changes in jobs, the economy or even lifestyle. This conundrum often leads many individuals towards loan solutions or excessive spending on credit cards. Overdraft facilities are also a common go-to solution for numerous people. What this leads to is over-indebtedness, which worsens the outlook considerably.

Poor Money Management or Budgeting
Budgeting skills form the foundation of basic money management. When these skills are in short supply, individuals may find themselves struggling from month to month. Keeping track of spending through a budget is a task that requires focus and dedication.

The problem arises when you lose track and end up over-spending in cash or using your credit card.

It’s advisable to come up with a sensible and realistic money management plan which clearly specifies your monthly income and expenses. Keep track of this budget to ensure that expenses don’t exceed income.

Getting a Divorce
Divorce has become increasingly prevalent nowadays, which means more individuals have to shift their lifestyles to fit with their new financial situations. Factors such as having to accept the absence of a spouse’s income are a major contributing factor towards adjusting. Legal fees may also contribute to a downward spiral while emotions may influence shopping splurges, which only add to the problem.

Gambling Debt
Gambling is a popular form of entertainment. It’s harmless- when done responsibly. Some individuals, who may have a problem, have trouble curbing their desires and may find themselves losing money very quickly. When it becomes an addiction, individuals may face heavy losses, which ultimately have a highly negative impact on financial welfare.

Help is available from the National Responsible Gambling Program.

Medical Expenses
One of the most unfortunate circumstances individuals can find themselves in is to be in debt because of medical expenses. Medical insurance doesn’t always cover all costs, which means that individuals often turn to lending institutions to get a loan to cover these costs. High hospital fees may plunge individuals deeper into debt.

It may help to secure a financial safety net in addition to medical aid.

Lack of any form of Savings
Saving is often disregarded by many people. This is despite the escalating cost of living and worsening economic outlook. Instant gratification is another factor added to this problem. It’s however, important to plan for the unexpected and consider that financial certainty can be rocked by illness, retrenchment or even a death in the family, which may require hefty funeral costs. Without any savings to rely on, individuals turn to loans, which lead to debt spirals.


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