Understanding How You Got Into Debt
No one ever plans on falling into financial difficulty, yet debt
happens to many people all the time. It's easy to get into debt,
but it's hard to get out.
People get into debt for various reasons. It's possible that you
played no part in the accumulation of debt--you may have inherited
it from others or acquired it a s a result of circumstances beyond
your control, such as a serious illness or a natural disaster. Most
people, however, have a pattern of debt behaviors that get them
into the financial trouble.
For many people, excessive personal debt is a gradual and insidious
process that starts innocently enough with a charge account here
and an extra purchase or two there. Changing attitudes towards the
use of department store and credit cards coupled with the ease of
getting credit have contributed significantly to cases of debt.
According to the reports by the Consumer Federation of America,
more than 50 million households carry an average credit card balance
of $7,000. One study shows that the average household with credit
card debt pays more than $1,000 a year in interest, which is not
tax deductible.
It is important to understand underlying attitudes towards credit
and debt before any policy is formed which aims to curb people's
entry and progression through increasingly unmanageable levels of
debt.
It has more to do with people's behavior patterns -- and their
self-esteem -- than with how much money they earn. You can't correct
dangerous behavior unless you recognize that it is harmful.
Why do people get into debt?
Some of the most common causes of debt problems include:
- Unrealistic expectations
- Easy credit
- Too many credit or store cards
- Not having the income to support wants
- Moving loans from one company to another
- Not paying off loans before getting more things
- Feeling a need to have what others have
- Children's wants and giving in to them
- Loss of job
- Loss of income
- Changes in family, e.g., new child
- Divorce
- Not having money set aside for an emergency
In essence, the most important reasons for debt problems with today's
ordinary people are:
- Availability of credit:
Ease of getting credit makes people feel that they have power
and control. Consumers are made to feel guilty for not using credit
or for not having a credit card.
- Compulsive and irresponsible spending:
Relaxed attitudes towards the use of store and credit card --
Now I can walk into the mall and buy an outfit with the salary
I'll be earning 10 years from now. Most spenders have little idea
of how much their purchases really cost because they use credit
cards.
What motivates our bad spending habits?
- Lack of training in handling money
- Depression -- Spending makes us feel better until the bills
arrive
- Feelings of anger, hurt, disagreements
- Boredom
- Envy
- Children -- Trying to fulfill all of their wants, even when
we know we cannot afford to do it.
- Unhappiness
- Free time
- Struggling
- Feeling sorry for our selves.
We probably spend it for much the same reason: a feeling of security.
And it's why we often end up with debts that are so out of control
we sometimes feel as if we're wading through treacle.
Why do we find it so hard to live within our mean?
- Impulsive buying
- Comparison with others
- Wrong priorities
- Misplaced values
The importance of changing your behavior
The traditional ways of helping people deal with spiraling debt,
such as negotiating with their creditors and working out debt repayment
schedules, will not help change the negative behavior pattern.
Psychological factors are the driver for spending and saving patterns.
You need to sit down and understand why you have a consistent financial
problem. If you focus only on the financial end of it, you will
be in trouble again in five or six years.
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