For debt management, beware these twenty ways to get into debt.
1. The big cause of debt
Your parents didn’t teach you how to manage money. They probably didn’t know themselves. Or they may have considered it was so obvious that they didn’t need to teach you.
My parents trained me with the traditional Scottish approach to getting the best value for money with no debt.
Your school didn’t teach you. That could be because banks finance schools, and banks don’t want you to handle debt well. Banks need customers with bad debt. Don’t worry; this site is your go-to for managing money. Take control. Stop being financially illiterate.
I remain debt free because I avoid number 2.
2. Not Saving Money
Don’t think this is unrealistic waffle. You’ll get there if you follow suggestions on this website.
I’m sorry, but emergencies WILL come. Always have enough savings for an unexpected demand. If not, you must keep a budget.
Don’t keep your money in the bank. A financial crash worse than the 2008 one is coming, and you might lose everything in your bank accounts. Keep only one or two thousand dollars in your savings account for convenience.
3. Not Sticking To Budget
I can’t write the whole website in one day. Advice about budgeting is coming. Meanwhile, you should Google “how to budget.”
You should learn the basics of bookkeeping (see tip 1) then install the free program GnuCash. They have full instructions there but learn about double-entry bookkeeping beforehand. I keep two books with that program – one for home and one for business.
I think it has a budgeting section too but I can’t tell you about that because I just keep a mental budget.
In the old days, your pile of coins or cowrie shells told you when to trim your spending. But you can’t see your credit card debt. You need a more formal budget. I don’t keep a budget. I only have a debit card, not a credit card so I can only spend money that I have. With online banking it only takes a few seconds to see how much I still have. I aim to keep it at about two thousand dollars. If it falls below a thousand then I go into full miser mode. Easy.
4. Credit Cards
My advice is – have a debit card – not a credit card. I used a credit card for many years with no problems. The banks probably hated me, because I always paid near the end of the interest-free period. You wouldn’t visit this site if you could do that.
I find it difficult to believe … the average USA credit card debt exceeds $15000. Credit card interest is often over 20%. At that rate, it takes only four years to double your loan. Some charge over 30%.
5. Student Loans
A student loan is the worst, most sneaky debt trap. I’ll write more soon.
6. Keeping Up With The Joneses
DON’T. The Joneses have high-stress lives, working more than fifty hours a week in the hope of being out of debt at the age of 65 when they are too old to enjoy it.
A mortgage is usually a terrible idea too. Did you know that you are likely to pay up to four times what the house is worth in interest and bank charges? I’ll write about avoiding mortgages too.
8. Reduced Income
A sudden income reduction increases all your debts. You lose your job for instance, and mortgages – school loans and debt management problems hit you.
9. Big-Spending Partner
Don’t have joint bank accounts. Financial problems can lead to divorce.
You’ll need big savings for this.
11. Not Studying The Fine Print
“No interest for five years” is NOT an opportunity. It’s a trap.
12. Growing Families
A couple has good jobs. You can easily pay your mortgage and student loans. Twins come. The wife stops earning. Debt, debt, debt.
Your water heater springs a leak. You need to buy a new one. The plumber’s bills are high. Or the Council doubles your rates. Perhaps you get sick.
You put yourself at the mercy of the person you are helping. If your child doesn’t pay off the student debt, you may be stuck with financial hardship all your life.
15. Lack Of Insurance And Gambling
You could win the gamble, or regret it for the rest of your life in first world countries. In some countries health visits are so cheap that you don’t need insurance.
Rates, taxes, housing, food, and gas expenses all go up.
17. Identity Theft
Perhaps someone steals your identity and creates a bank account in your name. They will put you heavily in debt before you can get a refund.
18. Impossible Dreams or Impulse Buying
“If only I had ………………… [fill in a daydream] – my life would be perfect.” You buy on credit, but you don’t enjoy your purchase. And you still have to pay off your debt.
19. Spending an Expected Bonus
Don’t spend money before you cash the check. You may never receive what you are expecting.
20. Spending Money to Make Money
Only invest money that you can afford to lose.
I’ll eventually write more about how to avoid these 20 ways to get into debt and use good debt management. Meanwhile, if the debt collection agency is getting aggressive, learn what they are allowed to do legally. There are debt collection laws. They vary from country to country – this article is for the USA but there are probably similar laws in your country.