How Do People Get into Debt? – Things to Avoid, FAQs & More

22% of adults in the UK are indebted today.

Debt is usually unforeseen as it comes from unexpected financial responsibilities, but it can also result from bad spending.

Through this article, our aim is to educate you about common reasons for debt, habits that can save you from debts and to answer some FAQs.

What Can Lead to Debt? 

So often, we’re put in circumstances that have no other way around them. Some of these situations that lead to debt include the following:

Underemployment

Underemployment may seem like a short-term problem, but it actually has long term effects on the money you hold. 

If you’re unemployed – or feel like you’re underemployed – you should start looking for another job, while keeping a well-balanced budget for the income you have.

You can’t really tell when you’ll find yourself a well-paying job, so it’s always recommended that you spend very little from your income to avoid running out of money and falling in debt.

Medical Expenses

Medical expenses are among the most common reasons that can run you out of money. We feel like it is a necessity that costs almost as much as a luxury. 

And if you need to spend in this direction, you just have to, there’s no other way around it.

Here’s a fact: the problem of budget-exceeding medical expenses is so widespread, that hospitals have started sending patients with overdue bills to money collection agencies.

When you’re being put through this, and are taking loans, or making huge credit card transactions – you’re leading yourself to debt.

This is why it’s always recommended that you save a good amount for emergency funds.

Debt From Education

Everyone has their right to a good education, but with the constantly hiking education costs, it seems like an impossible idea.

But, is it really? With improper budgeting, yes.

While many people look forward to college education, not everyone plans for it. And that’s exactly what it needs.

To avoid huge college debts in future, it’s best to save up for your future fees from the very beginning. 

So yes, a good budgeting can save you a good amount of money that can be later used to aid your education.

How Bad Can it Get? – Interests & Debt Recovery Fees

This straining process of debts doesn’t just involve the constant stress of the responsibility to pay off the owed money, it can even take years off your life.

According to most experts, a DTI higher than 36% means you’re too deep into debt.

This is when debt starts making your financial decisions for you – you can merely save up, have to limit your necessities, and even take more loans just to survive the previous crushing debts.

In fact, the more you keep yourself indebted, the higher is your chance to fall deeper into constantly hiking interests and recovery fees.

In extreme cases – when you lose the ability to pay back at all – your lenders can take your case to the court. 

However, you cannot go to jail just because you’ve failed to pay your debts – unless you’ve committed some sort of fraud in the process.

Do Banks Want You to be in Debt?

This is a tricky question.

Of course, we can’t really claim that our banks want us to be in debt, because even the so-called ‘hidden’ charges are mentioned somewhere in the contracts that we don’t bother looking much into.

The thing is that due to all the interests imposed on them, they’re actually a good deal for the lender – it’s obviously a good way for them to make money off you.

However, it’s only good for them to the extent of your ability to pay them back. What this means is that if you are unable to pay them back, your banks are just stuck with a sum of money that you owe them but can’t return.

In such extreme cases, banks also tend to make a few lenient negotiations with their customers.

These settlements are good for the customers but not for the banks.

Common Mistakes to Avoid – How Not to Get into Debt

We want you to know that while debts seem impossible to avoid, there still are ways to avoid some of them.

Reckless Spending Habits

Before looking into any other causes, let’s talk about the most important (and also the most avoidable) one.

A lot of people indulge in bad spending habits. 

You might be spending too much on your clothing or your food without really noticing. Buying branded clothing items and dining out too often can burn a bigger hole in your pocket than you may think.

You need to cut down your impulsive shopping patterns. Always prepare a list before you go to shop and make it a habit to stick to it no matter what.

Mismanaging Your Budget or Not Having One at All

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, don’t spend all of your monthly savings. Instead, keep some for long run crises, like medical emergencies, etc. 

So, if you don’t have a budget, formulate one starting this month.

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

Misusing Credit Cards to Buy Things You Can’t Actually Afford

Before purchasing anything with your credit card, think through it: do you afford it without a card?

If not, don’t buy it.

Credit cards are a very attractive choice when it comes to making such a hasty decision, because you have to pay later, right?

Don’t forget that you still have to pay, even if it’s a month later. And if you can’t, debt will follow.

Having too Many Credit Cards

Credit cards are a big responsibility, and can be mismanaged easily.

This is because credit cards allow people to spend more than their ability does.

With the ‘buy now, pay later’ deal, many people outspend their incomes and eventually go into debt.

For this very reason, we recommend that you keep no more than one credit card – unless you have an urgent reason. The higher the number of credit cards, the higher is your chance of overspending.

Ignoring Early Signs of Credit Card Debt

A lot of people tend to ignore the early signs of credit card debt

If you have a small outstanding bill, then it’s okay not to worry too much. But you shouldn’t completely abandon your concern. 

This is because at the end of the day, no matter how small of an amount you owe, you still have to pay it back. You should formulate a balanced plan to pay it off to save yourself from stress.

In case you miss the deadlines, the recovery fees keep hiking, making the small concern a huge financial responsibility for you later. So, the earlier you pay them off, the better.

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 don’t plan out their education costs from the very start, they’ll 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 you’re able to formulate a good plan to pay it back, you might as well get rid of it without going through much stress.

in debt help

How to Get Out of Debt?

Although our first preference is to avoid debts in the first place, some of them have really become unavoidable, given the circumstances.

But don’t worry, if you’re in that situation, we can still guide you out of it:

Cut Down Costs

To get out of debt easily and fast, you need to save up a good amount of money that you can use to pay off your debts.

And to save up a solid amount of money, you need to spend less, of course.

We recommend that you go through your monthly budget and really look into things that you can survive without easily. Don’t confuse necessities with luxuries.

For starters, drop brands while shopping for clothes and for grocery along with reducing your outings. You’ll start noticing the difference soon enough.

Pay off Highest Debts First

If you have to get rid of more than one debt, it’s always safer to pay off the heavier one first.

Why? Because the higher the debt, the higher the recovery fees that come with it. 

If you miss the deadline to a heavy debt, you might be accidentally dropping yourself into a deeper financial crisis without really noticing the dreadful pattern.

So, make a proper plan for this, and put the heaviest one on top of your responsibilities.

Take up Freelance Work

If you think you’re underemployed and are not being paid well enough for your skills, take up freelance work

Freelancing rewards everyone differently. But making extra money will obviously aid you in the process of getting rid of your debts. 

With the increased market demand, freelance work has become a rather essential part of the job sector today. So, if you’re in search of a way to pay back your loan faster, this is a great option to consider.

This is also a great option for people who don’t make enough income to pay off their debts safely, but also can’t take a second office job due to the tough working hours. You usually have more flexible working hours as a freelancer than as an office job holder.

Pay back in Instalments (Debt Management Plan)

A well managed budget is among the most important things people need to avoid debt – or to get rid of it.

Even when it comes to paying it off – which probably has been leaving you sleepless for nights – a well planned instalment scheme can help people go debt free in gradual steps.

So, don’t spend time stressing out too much looking at the total amount, make a smart plan according to your requirements and follow it.

Even though most of the time, lenders themselves provide you a suitable instalment plan if you ask for it.

FAQs – How to Get Out of Debt or Manage Debts

Is it possible to ever be debt free?

Yes you can definitely get debt free, but the pace of the process depends on your financial ability to pay it back and the amount of money you owe.

The faster you want to be debt free, the more limited lifestyle you’ll have to adopt for the time being.

Can I get rid of debt without paying anything?

Only in extremely rare cases is the answer to this question yes.

If you’re having a hard time paying it off, you can try to negotiate with your lender – directly or through an agency – to reduce the interests, or to cancel the debt completely.

Remember that there’s a very less chance of a cancelled debt, so do not take loans in the hope that you won’t have to pay them back.

Can I seek debt help?

Yes.

There’s a good number of agencies that provide debt counselling.

Therefore, if you can’t figure out an accurate plan to manage debt, you can seek help from these agencies.

They even negotiate with your lenders to reduce your interest rate, or in extreme cases, try to get it cancelled.

How does debt affect my credit score?

Your credit score is your credit history.

It is through your credit history that your lenders – usually banks in this case – decide whether they can approve your loan or not.

So yes, your debts affect your credit score.

If you pay them back on time, they’ll have a positive impact on it, and if not, then your next loan might not get approved.

Are loans a good idea to get out of debt? 

Although it’s never recommended, taking loans for debt might work out for you.

Here’s the case:

If you have a good and long deadline for your debt, never take a loan to pay it off. It’s just an added hassle.

If you have to return it in a short time, you might as well employ this strategy.

But remember, if you’re not too careful, this might turn into a draining viscous cycle.

Conclusion

It’s fair to say that while people don’t want it and only go into debt under extreme circumstances, a lot of times debts are avoidable.

With the right knowledge on correct budget management, etc., you can save up a good amount of money for any future, unforeseen financial crisis.


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