Learning how it happens can stop you from doing it.
No one wants to be in debt, but the convenience of borrowing makes it almost impossible to escape entirely. What’s more, incurring significant debt can happen more frequently than any of us may realize.
When debt gets out of hand, it creates incredible stress and financial pressure, leading to bigger problems like bankruptcy. One way to keep debt from damaging your relationships and your peace of mind is to understand it on a deeper, personal level.
Check out these 10 reasons why people end up getting into debt to help you view it differently and make positive changes to how you deal with financial issues…
1. Wants vs. needs
Every person has a unique list of wants and needs, most of which have some direct connection to money. If the money is available, then those wants, and needs can be instantly satisfied.
When that isn’t feasible, many people feel unhappy and look for some other way to pay for what they seek. How a person reacts to the inability to fulfill wants and needs depends on cultural beliefs about money, borrowing, and purchases. Some people may save money and wait, while others seek instant gratification.
Credit cards changed things dramatically. People could satisfy those wants and needs immediately while delaying the need to pay for them until some future date. As a result, many people sought that instant gratification through retail therapy, courtesy of those little plastic cards, while delaying the need to figure out how to pay for the goods.
2. What we tell ourselves and how it feels
When we decide to incur a debt, we typically convince ourselves that we deserve it and can afford to pay it back over time. For example, humans reframe the act of purchasing a $20,000 car, especially after making a down payment or trading in an older car. That debt breaks down to $350 a month for the next four years, so it’s affordable, and we also get what we want on an emotional level.
That can work out well for people with ample means to make those payments. However, others may experience “buyer’s remorse” once they realize how much they have to pay back and for how long.
That’s when the debt starts to create stress and strong feelings of regret. It may add to stress as well – for instance, feeling stuck in a despised job because they need the paycheck to pay off the debt.
3. Social acceptance
Society has always linked money with acceptance, social status and privilege. People with more money are often viewed as more popular, thanks to the perceived success that’s inextricably tied to personal wealth.
In attempting to create this status for themselves, many people have developed a facade supported by a mountain of debt. They believe and hope that they will gain greater social acceptance by their peers if their perceived wealth increases. In some respects, social media reinforces and drives this desire to prove that we’re keeping up with the Joneses.
4. Marketing and the media
With so many platforms highlighting influencers who hawk products, this societal force has helped to convince people that it’s okay to go into debt. They believe the marketing hype.
Brands strategically use the media in ways that increase their influence over society as a whole. As a result, people begin to convince themselves they need these products in order to have a good life.
5. Economic bubbles
While it’s nice to see home values rise, unemployment drop, and financial stability increase, these developments can also create a false sense of financial security that causes more people to start taking on more debt. Instead of deciding to save more, this “consumer confidence” mentality leads them to spend more, sometimes far beyond their means.
In the past, we’ve seen individuals fall into that trap by getting home equity loans and lines of credit to buy boats and other “toys” only to be hit hard when the economic bubble bursts. The result has been plummeting home values that have put those people in real trouble.
Eventually, they end up “underwater,” their debt far outweighing the home’s value. This can lead to bankruptcy and other financial losses, such as foreclosure.
6. Financial emergency
We willingly and unnecessarily assume much of the debt we incur. However, many times debt arises out of unforeseen emergencies. A car accident, a major health emergency, a lawsuit, or a natural disaster can change your financial status in an instant.
When people don’t have sufficient extra funds set aside to cover emergencies, the sometimes unavoidable result is racking up enormous amounts of debt. Even though it’s for a good cause, this debt is just as damaging. Additionally, it can be harder to recover from emergency debt, due to the overwhelming amounts typically involved.
7. Depression and stress
The aftermath of a heavy debt load can also be destructive. The results of several studies show emotional trauma and significant personal consequences. For example, some studies found that people with the highest debt loads also experience more mental and physical health problems, including an increased rate of depression.
Find out: How Money Affects Mental Health
8. Relationship and problems
Part of the emotional burden of carrying debt involves resentment, especially when a spouse or significant other feels morally or legally responsible for paying off that financial obligation. In fact, financial disagreements are one of the top reasons that relationships end in divorce.
9. Bigger Issues
Debt can impact other choices in life as well as the results of making those choices. For example, many hiring companies now look at credit scores of job candidates to determine their level of fiscal responsibility.
College graduates with massive student loan debt can become quickly frustrated if they can’t find a job that allows them to pay off that debt. It may even postpone other purchases they’d like to make, such as a home.
10. Coming to terms with debt
If you are carrying a lot of debt and feel overwhelmed at the thought of it, there are ways to cope with the stress and even pay off the financial obligations that are causing distress.
If you are looking at significant purchases and costs such as college, start planning early, become more financially literate, and learn how to make wiser money-related decisions now before you assume that debt.
Click here to sign up for our free financial education email course.
Published by Debt.com, LLC