The Top Ten Causes of Debt
By
Steve
Bucci
Bankrate.com
Hundreds
of readers have written
to me asking for advice on dealing with debt and how
to avoid debt in the future.
Between Bankrate readers and my clients at Consumer
Credit Counseling Service
of Southern New England, I have a unique source of
data. Yes, it is unscientific,
but it is reality as experienced by a growing number of Americans.So
here goes: Your top 10 causes of debt! 1.
Reduced income/same expenses. Too
often we delay bringing expenses in line
with a reduction in income for a host of good reasons
and let debt fill the gap.
The sooner you adjust to your new reality, whether
it be temporary or permanent,
the better off you'll be. 2.
Divorce.
More
than half of us do it, some more than once. I can think
of few things
more expensive and likely to put you in debt. For those
of you who have never
done it and would like to get some idea of the impact,
sell all your assets and
get the money in $50 bills. Go to a hotel on a busy
street, and you and your spouse
open two windows and see who can throw the most money
out the fastest. It can
be breathtaking. 3.
Poor money management.
A
monthly spending plan is essential. Without one you
have no idea where your
money is going. You may be spending hundreds of dollars
unnecessarily each month
and end up having to charge purchases on which you
should have spent that money.
Planning is no more difficult than writing down your
expenses and income and reconciling
the two. You will be surprised at how powerful you'll
feel when you are making
thoughtful decisions about where and when to spend your money. 4.
Underemployment.
A close cousin to No. 1, people who experience under
employment
may continue to think of it as only temporary or if
they are coming off unemployment
feel a false sense of relief. Yes, you deserve a break,
but this is not the time.
Get those expenses in line with your current income.
Down the road if you increase
your income due to more hours, a second job, or a better
job, then is the time
to start adding in some of the previous spending before you became underemployed.;5.
Gambling.
Call it America's new entertainment or (considering
the boom
in tribal casinos) the Indian's revenge. Either way
there is a guaranteed exchange
of money from you to "the house." It can
be addictive, hard to stop
and loans are freely available. Gambling establishments
may be the only place
you can mortgage your house while intoxicated and have
it be legal. I'm sorry,
I forgot -- this is entertainment! 6.
Medical
expenses. Gaps
in coverage, lapsed policies and increasingly costly
alternatives
make this a popular category. Just about every doctor
I know now takes credit
cards. If you think it's for convenience, think again.
The medical industry wants
to get paid at the time service is rendered. They know
that if they don't, the
chances of their getting paid drops. This means more
debt for you, less for them.
To be fair, they are not in the lending business, but
this only masks a bigger
problem7.
Saving too little or not at all.
The
simplest way to avoid unwanted debt is to prepare
for unexpected expenditures by saving three to six
months of living expenses.
With a savings cushion in place, a job layoff, illness
or divorce will not cause
immediate financial strain and increase debt. You always
hear, "Pay yourself
first." Do it and it will grow and be there when
you need it. No one has
ever regretted having a savings cushion. 8.
No money communication skills.
It is important to communicate with your spouse
or significant other and your children about finances.
Keep the lines of communication
open and discuss financial goals and spending styles.
If you are married to a
spender and you are a saver, you will want to map out
a strategy for you both
to get what you want. Know what credit accounts you
each have and promise each
other to be honest about what each other spends. Many
people find out that their
spouses have racked up thousands of dollars in credit
card debt and they had no
idea that the accounts even existed. This often leads to number 2 above. 9.
Banking on a windfall.Spending
tomorrow's money today is very tempting.
Especially if you believe that tomorrow will come no
matter what. A planned job
bonus may not be a sure thing. The inheritance that
you believe will come your
way may not. The lesson is don't spend the money until the check clears. 10.
Financial illiteracy. Many
people don't understand how money works
and grows, how to save and invest for a rainy day,
or even why they should balance
their checkbook. The schools don't teach it, your parents
may not have sat you
down and explained it. It doesn't matter. You are responsible
for your life and
your money anyway. Financial mistakes are increasingly
expensive and complicated
to resolve. Get educated and get in control. Back to Your Money: Why Americans Aren't Saving |
