Debt, it’s a word that fills most people with a sense of dread and yes fear. Being in debt is always going to be related to hardship and difficult times ahead. There’s no way to avoid struggling both financially and personally when you’re in debt. Of course, the best way to avoid this debt is to make sure that you are aware and understand the causes of debt. If you understand common causes of the issue, you will be able to approach them head-on if they begin to impact your life.
The Major Causes Of Debt
Buying Something You Can’t Afford
This could be anything so let’s start with something simple like a TV. Perhaps you have decided to get your hands on a brand new 4K tv. After all, they’re on sale right now, but you have to be careful here. You shouldn’t buy something unless you’re sure you can afford it. You might say, well I’ve got a credit card for purchases like this. If you buy on credit, you should still be figuring out how long it will take you to pay the cost and how early you will be able to escape the debt. If you can pay it off before the interest rate kicks in, then you can certainly afford to buy the TV.
What about savings? Perhaps you decide to buy that TV out of savings. While possible, this could be a mistake because savings are for a rainy day, not adding new exciting tech to your home. You should be able to buy this without cutting into safety money or not touch it at all.
Of course, it could be something bigger like a car. One of the biggest mistakes you can make would be buying a car on finance because this often leads to unmanageable costs. Or perhaps you might be buying a home? Everyone goes into debt when they buy a first home, but the trick is making sure that it’s manageable. If it’s not, then you’ll find yourself thinking, I want to sell my home fast before the situation gets any worse. Often, if a purchase is causing you debt, selling is your only option.
Drop In Income
Of course, it’s possible that you haven’t bought anything you can’t afford but rather your financial situation has changed. An example of an issue like this could be career redundancy. If you are made redundant and let go from your job, you will find that there is increased pressure on your finances to the point where you struggle to be able to afford basic needs without borrowing.
What do you do in this situation? Well, for starters, you should be reigning in your spending dramatically and making sure that you are making savings where you can. This could be as simple as cutting your energy costs down. You’d be amazed by how little changes could actually help you financially.
We hope you understand now that there are two main sources of debt, buying what you can’t afford or possibly a change to your finances. Both can be dealt with in different ways.