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How Do People Get Into Debt

You Dont Invest Your Money

HOW DEBT CAN GENERATE INCOME -ROBERT KIYOSAKI

Its important to always have the long-term in mind when handling your finances. Polls show that only 37% of people younger than 35 have stocks, which means a huge loss for opportunities at future wealth. The idea of putting away money in stocks can seem overwhelming or otherwise unappealing since they see no short-term benefit. However, its often said that time is an investors greatest asset, which means young people have the most to benefit from funneling some income in the stock market using easy to use investing apps.

Help Them Consider Whether An Item Is A Want Versus A Need

In other words, is the thing they have their eye on truly an essential or a nice-to-have? One way to encourage this thinking early on is by allowing your teen to pay for needs and wants themselves. Theyll quickly learn how purchases add up each week and each month and that the sky doesnt fall if they miss out on some things their friends might have.

Going Into Debt Can Work

If you do have any debt, make sure that you pay your debts in time and are up-to-date as a lender is not going to consolidate defaulted loans. There are personal loans and financial services available for people having bad credit that are looking to finance a purchase.

If youre able to do that it will go a ways towards youre getting financing. A secured loan would be probably difficult to get in case you have a poor credit score, so you might forget about that alternative. There are many loans you are able to get to help you reach your personal goals without hurting your credit or debt goals.

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Mismanaging Your Budget Or Not Having One At All

Getting Into Debt

Having a budget is not only one of the best ways to avoid debt, it is something you owe to your hard-earned income.

With an accurate budget, you will know how much you need to keep for your monthly necessities, like bills, etc., and how much you will be saving.

Then with this saved amount, you can proceed to buy whatever you want.

Still, dont spend all of your monthly savings. Instead, keep some for long run crises, like medical emergencies, etc.

So, if you dont have a budget, formulate one starting this month.

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Use Savings To Pay Down Larger Debts

Don’t be afraid to use a portion of your savings to pay down high-interest rate debts. Using cash reserves for debt repayment is a smart decision because you will stop accruing interest on those large balances. Although it may feel comforting to have some extra cash sitting in your bank account, the truth is that those funds aren’t really working for you not with today’s record low interest rates. Don’t deplete your savings entirely. If you’re sitting on a pile of cash, do use some of those funds to eliminate your bills.

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Not Having An Emergency Fund To Fall Back On

The reason why we advocate for extra saved money is because we know how bad it is to not have any emergency funds and just how life-saving it can be to have them.

Emergencies are obviously sudden, and a lot of times, their primary requirement is cash.

Whether its a sudden fee hike at your college, or a medical emergency, your saved funds can save you from going into debt.

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Lies That Keep People In Debt

11 Min Read | Jul 18, 2022

Debtits as normal as waking up in the morning and brushing your teeth. But just because debt is normal doesnt mean its good for you. We have a fun little saying around here when it comes to debt: Debt is dumb. It really is.

Debt robs your present and steals from your future. Debt keeps you stuck in a cycle that makes it impossible to build wealth. But sometimes, people are so caught up with being in debt, they cant see a way out.

There are all sorts of excuses people give for staying in debt instead of taking steps to become debt-free, and all of them are bogus. Dont fall for any of these 12 lies:

You Spend Your Time Ineffectively

Debt Management : How People Get Into Debt

If you are working a dead-end job or doing something that fails to inspire you, you should have a plan for how you want that to change. Spend your leisure time investing in yourself and increasing your value in the world. Consider furthering your education in your downtime by taking a few classes. Your level of education is positively correlated with wealth, so there is long-term relevance in this self-investment.

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How We Are Forced Into Debt

From the first day you start a new job youll hear friends and family tell you that you need to get a good credit score. You must go out and get a store card so that you can build up a credit history as soon as you can. Youll need this positive credit score in order to get a loans and possibly even purchase a property one day.

Thats all fine and well, but in order to get a you have to take out debt somewhere and prove that you can pay it off. Getting your first store card or credit card is a sought after thing for many youngsters as its a sign of adulthood. Were kind of brainwashed into believing that this is a good thing and that we really need debt in order to live a better life! We obviously need credit cards, store cards, vehicle finance, short term loans, etc as thats just part of life. Thats what were told.

Life for Ms Savvy

Think of 30 year old Ms Savvy who has never had any debt. She owns a old car that she bought second-hand and has survived quite well living within her means. In fact, she even has some savings, a retirement fund and a small investment. Shes managing her money really well! Probably better than 80% of people!

This however is not the case as Ms Savvy would most certainly not qualify for any finance as the banks are really not interested in how well you are able to save and invest, theyre only interested in your spending habits and how much debt you have.

That seems back-to-front doesnt it?

How Can You Dig Yourself Out Of Debt And Save At The Same Time

Yes. You can dig yourself out of debt and save at the same time, but it takes planning. First, tackle the high-interest debt, and always pay the minimum balance on your credit cards and loans. Plan to save a small percentage of your paycheck for your nest egg, as you pay down your loans. Even a small amount in a savings or money market account will add up over time.

Another way to dig out of student debt is to consider finding a job with a higher salary and allocate more money to paying down your loans.

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Why It’s Important To Keep Balances Low

No matter what you’re spending on, it can be more expensive than ever to let that monthly balance roll over. That’s because the average credit card APR has never been higher: Rates are currently sitting at 17.73%, according to CreditCards.com. Because of that, the interest accrued on monthly balances can quickly add up.

Let’s say you have the average credit card balance of $6,354. If your card charges the average APR and you pay the minimum each month you’d stay in debt for over 17 years and put more than $5,800 toward interest.

Why Do People Get Into Debt

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There are several reasons why people accumulate debt, like paying for unforeseen emergencies or unemployment. But most often, debt is a result of bad spending habits, not living below your means, not investing money, and not building income streams.

We will dive more into some of these reasons and see any of them sound like you and take note on ways to fix it.

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Lie: You Dont Need Your Spouse To Be On The Same Page

Money and relationships can be tricky territory, but its even worse when a couple isnt seeing eye to eye. Maybe one of you is fully on board with becoming debt-free but the other isnt quite convinced that debt is all that bad. Listen upthis isnt something you want to be split on. If you really want to get out of debt, you and your spouse have to be on the same page.

And remember, its not my money or their moneyits our money. Once you get married, your vocabulary needs to change. Youre on the same team, and you have to start acting like it if you want to get anywhere.

The same goes for your debt. Its not my credit card debt and their student loans. Its your joint debt together. And if you want to get rid of it, you need to tackle it as one team too.

Interest Charges And Late Fees

Would you willingly pay significantly more than an item costs in the store? That is effectively what you are doing when you carry a balance on your credit cards. As interest rates rise and as the balance of your debt increases, the cost of carrying that debt becomes even more substantial. Its not long before handling your monthly payments becomes unaffordable.

Proper debt management requires discipline. For example, avoid late fees and interest charges by avoiding carrying a balance on your cards. If you are carrying a balance, ensure that you pay on time every month to avoid late fees.

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How The Debt Spiral Begins

For many people, the slide into debt begins with student loans. An estimated 43 million Americans have student loan debt, with an average balance of just under $40,000. Unfortunately, student loans may be a necessity to pay for an undergraduate or graduate degree as tuition costs rise year-over-year.

Because paying for college or technical training in cash is unfeasible for most people, education loans are the only choice. The downside is that taking out a loan immediately compromises your personal balance sheet. While you’re in school, you’re accumulating debt at a time when you probably do not have enough income to make even a single loan payment.

You Allow Expenses To Rise With Income

I Keep Getting Back Into Debt Because of Credit Cards

Andy Brantner, a certified financial planner and partner at BKLM Financial Services Consulting, knows financial discipline does not come easy. Its hard not to buy a better car or a bigger house when you get a raise, he said. But failing to keep your expenses steady when your income goes up creates a vicious cycle.

It can be especially dangerous if you are still carrying debt from the days when you were earning less, and now are taking on more loans to help pay for that bigger house or a better car. Your debt will balloon, leaving you unable to pay it off despite the bigger paycheck.

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Not Paying Attention When Juggling Credit Cards

Juggling credit card debt to get the best rate is an excellent idea if you are looking to pay them off. Be fully aware of when the low interest rate expires so that you can either make sure that the debt is cleared before that date or swap it to another low-interest card. Having access to a longer line of credit can be tempting and having multiple credit cards can take work. So if you dont take care of them you will get into debt just because it is available to you.

You Live Beyond Your Means

You spend more than you earn because you spend too much time on social media and you see your friends living the great life.

You are bombarded with pictures, posts, and stories of their recent trips, new cars, bags, etc. Not only your friends but also the Kardashians, celebrities, and social media influencers you are following.

We are bombarded more than ever by advertisements that we start to feel that we need to keep up with them.

Because you want to be like them and as happy as they seem online, you buy the stuff they have. But since you cannot afford them, you exhausted your savings.

Or maybe bought a new bag you dont need instead of sticking to your budget, and ultimately used your credit card or take out a personal loan. You end up in debt.

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Mismanagement Of Student Loans

Student loans are one of the loans that are almost impossible to avoid.

But with the right management and planning, you can avoid borrowing a huge loan, and also return the amount in a well balanced manner.

If people dont plan out their education costs from the very start, theyll have to take too huge of a loan to cover their college expenses.

On the contrary, some savings can help you decrease the amount of loan needed.

Similarly, if youre able to formulate a good plan to pay it back, you might as well get rid of it without going through much stress.

End Of Year Inflation

How do people fall into debt and never recover?

You may notice that the cost of living regularly increases for certain services like medical insurance, or food and beverages. When a budget doesnt account for these additional costs, it can end up slowly creating debt. Budgets are spent on the necessities, while that plastic surgery bill gets ignored.

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How Do You Get Into Debt

by Neal Frankle, CFP ®, The article represents the author’s opinion. This post may contain affiliate links. Please read our disclosure for more info.

We spend a lot of time talking about how to get out of debt on this blog. But its far more important to avoid getting into debt in the first place. How do you get into debt?

My experience tells me there are 9 main reasons. Lets examine these debt traps and discover what to do in order to stay clear of them all.

You Arent Living Below Your Means

Of course, it can be tempting to drive a nice car and live in a nice house or fancy apartments, but if the amount of money you are making fails to justify these expenses, its better that you swallow this bitter pill of reality sooner rather than later. Dont let your ego prevent you from doing what makes sense of living below your means.

Instead of having a nice car with lease payments every month, downgrade to a used car and buy it outright. This will pay off in the long run as you dont need to keep shelling out cash every month to use something that isnt even yours.

Depending on your situation, the same may apply in regard to buying a house versus renting. You generally never see the money you spend on rent again, so if you can confidently buy real estate, at least you get a return on your investment. Even though homeownership among younger generations remains low, mortgage rates are often the more economical choice if your circumstances allow for it.

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People Have Too Many Cards

It’s easy to get multiple credit cards, and the more cards you have, the harder it is to keep track of all of them. If you aren’t good at managing all of your cards, then mistakes can lead to missed payments that incur expensive late payment fees, getting you into even more trouble.

Make sure you have only as many cards as you can manage effectively. Just because you can have more cards doesn’t mean that they’ll do you any good — and often, having them can get you into trouble.

Do A Credit Card Balance Transfer

Top 5 Ways People Get Into Debt

Most of us typically tear up all those credit card balance transfers that arrive in our mailboxes. But if you want to go on a tear with your debt reduction efforts, a balance transfer can help. By transferring high rate debt to a zero percent deal one that lasts for 12 months or so you eliminate all credit-card interest. That frees up cash flow, giving you additional money to knock out those credit card bills. Just read the fine print before signing up to make sure you are really getting that low rate.

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Know That You Can Be Debt Free Join A Community

Dreaming about life is lovely but it doesnt help much much without action!

Join the online debt free community via your favorite social media and keep engaged with what others are doing. There are hundreds of great blogs and it is easy to find one that resonates with you. Being part of a community is a great way to stay motivated and to meet others who are either already debt free or who are working towards it. Sign up for my newsletter as a start.

The more like-minded people you meet the easier your journey becomes.

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