For most of us, debt comes softly. Bills sort of sneak up until you are left wondering what happened. Understanding how you go into debt is very important. This understanding will not only help you to get back out of debt, but it will also help prevent you from getting back into it.
Try to trace back to a time when you weren’t in debt. What was different? Have you always been in debt? What did you learn about handling money from your parents?
Common causes of debt include spending more than you make, or overspending, a sudden or unexpected financial demand, or a reduction or loss of income. In each case, there are not enough financial resources to cover all of the expenses, in other words, there is debt.
Less common is debt that is caused not by lack of financial resources but by the inability to take the steps to use those resources to pay off the debt. For example, someone who is ill, depressed or overwhelmed may not be focused on actually organizing the bills and writing all of the checks to pay them off. In this case, outside help is recommended.
If your debt is caused by excessive spending, it is often not enough just to resolve to stop You’ll need to figure out the triggers that cause you to spend beyond your means. Is shopping a way for you to cope with and reduce stress? Are you trying to live up to others expectations or “keep up with the Joneses?” Have you taken on more monthly expenses than your income can handle?
If your debt is caused by a sudden unexpected financial demand or a reduction in income, you will need to do your best to pay off that debt and then put a safety net in place to prevent it from happening again. Find ways to increase your income, downsize your expenses and put an emergency fund in place.
It is important to realize that debt is often just a symptom that has an underlying cause. Understanding that cause, or in some cases causes, is the first step to solving the crisis.
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