Major Causes of Debt

by | May 15, 2022 | Budgets, Debt Relief

Why Do People Get Into Debt in The First Place?

What are the major causes of debt?

If you’re reading this, it’s most likely because you spent more money than you had, and you’re looking for a solution to help you out of what can seem like an endless downward spiral called “debt”. Unfortunately, you’re not alone.

According to a recent study, 80% of Americans are caught up in debt – that’s 8 out of 10 people you see at work, on the street, or at the grocery store for example, are struggling to pay their monthly debt payments.

The total U.S. consumer debt was at over $13 trillion dollars, including mortgages, auto loans, credit cards and student loans. Student loans are in fact the fastest-growing source of debt for U.S. households. (For more info, see 2020 Student Loan Industry Study.)

Debt has become so normal, that many Americans feel it’s the only way they can sufficiently support their life styles, families and so on.

Debt is not so much a new idea as it is a bad idea. Sure, at first, having access to credit enables you to purchase and achieve things you may not have been able to acquire without it, but it’s the management of that debt that can quickly get out of hand, leading to more and more debts, with more and more interests and… well, you know how it goes.

Understanding some of the main causes of debt can help you avoid it, or get out of debt:

1) One of the main causes of debt is reduced income. Having a certain level of income, you build up expenses and also use credit calculating that you can make the monthly payments in relation to your income. The moment that changes, and your monthly earnings are reduced for one reason or another, your expenses and your debt start to run in the minus. Today, many Americans make less money than what their monthly expenses are. When your income is reduced, for whatever reason, it is very important to recalculate your budget. This may also mean changing your lifestyle and giving up some of the habits or luxuries you had when you were making more money. Certainly, going into further debt to cover your expenses is not the right answer. This is easier said than done, but is a must for anyone who has reduced their earnings.

2) More than half of American marriages end up in divorce. Going through a divorce can be quite painful and expensive, needing to divide up assets, savings, debts, and so on. Similar to our first reason, when you are married your expenses and debts are calculated based on your and your spouse’s earnings. The second that changes, one or both of the spouses can find themselves carrying a lot of debt without enough money to pay it all. In addition to attorney fees, sometimes the settlement requires one spouse to pay the other spouse money, putting that partner in further financial strain.

3) Another major cause of debt is poor money management. This is one that is entirely in your control. Do you have a budget that fits within your monthly earnings and do you stick to it and follow it? Does that budget allow for a monthly savings as well as an emergency fund and if possible, retirement? Most people do not operate on an actual budget and manage their finances month to month based on how much they earn. Doing this may not only run you into debt and leave you paying high interest rates, but can wrack up a mountain of debt before you realize it’s too late. Running through life without a set budget and without a system to manage your personal finances, can also leave you short if any emergency or unexpected event occurs. Writing down your budget can be a simple yet very effective way to manage your finances so that you steer yourself away from debt.

4) Education is another major way people go into debt. Not too long ago I was speaking to a friend of mine who had finished 12 years of higher education to become a doctor. Unfortunately, she graduated with $500,000 of student loans. Not all student loans are that high, but one in every 5-6 Americans have a student loan. Student loans account for many people’s debt. A recent study showed that many Americans forego important essentials in order to try and pay back student loans, while others feel that they will die before paying them back.

5) This may sound too fundamental but not making enough money is an easy way to get into debt. Many people believe that they’re not making enough money is temporary or that they can live off their credit until they finally start making enough. This may be successful for a small handful but it’s not for most. If you’re not making enough money, getting a second job or reducing your expenses is very important in order to stay out of debt. If you’re not making enough money now as it is, building further debt with the hope that you’ll earn more in the future could leave you in a very hard spot to get out of, even when you do start making more money as you’ll have debt to pay back. 

Sleepy Money is all about make the best use of the money you do make, and how to build residual income by leveraging some of the most successful ways to make money work for you. Today, with social media and the internet, it is possible to start up an additional source of income if your current earnings are not sufficient. 

6) This sixth reason is something you’d probably not expect on this list, never the less it is a widespread problem. Nope, you don’t just see this in Western movies! Believe it or not a lot of people are in debt because they gamble. The idea of winning big or trying to win back a large amount that you lost leads to people taking loans. Gambling may be fun but done irresponsibly, should you lose money that you borrowed you now find yourself in massive debt with no way to pay it back. People who are addicted to gambling oftentimes find themselves in a miserable amount of debt, not only having lost a lot of money but not having any idea how to pay it back.

7) One of the biggest amounts of debt that Americans have is for medical expenses. Extensive or unexpected medical treatments not covered by insurance policies, or expired insurance policies put a lot of Americans into debt every single year. As America’s medical debt grows, hospitals and doctors are becoming more and more serious about collecting money owed, often turning over the debt to collection agencies.

8) No savings. Very often in life things come up that you did not plan for, and many times they require money. Some can be good, some can be bad. A baby, a sudden loss of a job, a car crash and so on. Every budget should include a percentage of your monthly earnings to go towards a savings account that is only used for things that you didn’t expect. Also called an emergency fund. Having money set aside for any occurrence in life that you did not expect is a great way to minimize or avoid debt all together. People who do not budget for this and do not have any savings find themselves depending on credit should anything come up.

Debt Discipline

Today, we have more access to credit and we have more ways to buy than we ever have before. With the internet and smartphones, easy financing options on houses and cars, and so on, spending money has never been easier. Additionally, today we are all subject to more advertising than ever before as our society has moved from buying because of need to buying because of want. Discipline in your financial spending is very important in avoiding debt and also getting out of debt. Resisting the urge to buy something you really want if you do not have the money can be easier if you see that perhaps that “urgent want” for a product or services was created by marketing and advertising. There is nothing wrong with having things you want and that makes you happy, having the car of your dreams and a nice house, a good education and so on. However, going into debt and buying with credit to the point you will not be able to pay it back can lead to other problems than just debt.

The key is to successful budget and manage your earnings and expenses so that you are not only staying out of debt but paying off the debt that you do have. Life without debt is a completely different life. And being debt free is a big part of what we want to help you achieve here at Sleepy Money. 


Penny Millions
Editor, Sleepy Money
(570) 903-8960