3 Reasons Why People Stay in Debt – And How to Fix It

Written By Naazma Garcia
Apr 14, 2022


Nearly 80% of Americans are worried about their financial situation, and almost half are worried about managing their debt levels, according to a recent survey. All of this stress really takes a toll – more than 40% of survey participants said that they have trouble sleeping due to their financial anxiety.

How do families end up drowning in debt for years? The answer may surprise you. Read on to discover the top 3 reasons why people stay in debt and get solutions to these common problems. 

1. Not Budgeting 

Do you know exactly how much money you spent last month, or how much you expect to spend next month? If the answer is no, you’re not alone. Research shows that a whopping 55% of Americans do not have a budget, and 56% of people did not know how much money they spent in the previous month. 

You know what they say: you can’t manage what you can’t measure. For consumers who don’t track their income and expenses, it’s nearly impossible to know where money is going and to make a plan to pay off debt. In fact, data suggests that those who don’t track their spending tend to have more credit card debt. 

The Solution: 

Create a basic budget that manages your spending. You can use whatever format best works for you, such as a spreadsheet, a budgeting app, or the 50/30/20 budgeting method

Not sure where to start? No problem! Check out some of our most popular blog articles about budgeting: 

2. Keeping Up with the Joneses

If your next-door neighbor buys a new car, would yours suddenly look a little outdated? When your favorite social media influencer posts a video about his fancy $500 barbecue, does that make you think about buying one too… even if you weren’t thinking about it before? 

We’ve all experienced the pressure to accumulate material goods and try to keep pace with our social circle. Unfortunately, keeping up with the Joneses is a fast track toward debt. More than 55% of Millennials claim that social media caused them to spend money that they hadn’t planned to spend because they compared their lifestyle and wealth to that of their peers. 

Pair that with the average American’s impulse spending ($276 per month on impulse buys, according to one survey), and you can see how easy it is to get into the red.   

The Solution: 

Clarify your values. What is most important to you – health, family, looking good, driving a new car, having one-of-a-kind experiences? Then, ensure that your spending habits align with your values rather than the values of those in your social circle. 

For example, if one of your biggest values is spending time with your family, budget to save for a fun family vacation rather than spending on new furniture that you don’t truly care about (but feel socially pressured into buying). You could even keep a list of your values around the house, on your smartphone, and at work to remind yourself to spend your hard-earned money on fulfilling things. 

If your biggest problem is impulse spending, consider preparation and avoidance your best friends. Prepare a shopping list before going to the store so unexpected purchases don’t derail the trip, and avoid websites and apps that lead to unnecessary spending, such as social media or e-commerce sites. Out of sight, out of mind. 

3. No Emergency Fund 

More than half of Americans don’t have enough savings to cover an unexpected $1,000 bill, with 24% saying they would have to turn to credit cards or take a personal loan to get by. This means that emergencies, such as a surprise medical bill, car repair expenses, or necessary home renovation, can quickly put families into debt. 

Unfortunately, once someone is in the hole, they often stay there. Credit card interest compounds daily, which means a cardholder’s minimum monthly payments often go toward paying interest while their balance increases every month. They get stuck on the “hamster wheel” of credit card debt, languishing in debt for years – or even decades – all because an emergency set them back. 

Learn more about the credit card hamster wheel in “2 Shocking Downsides to Only Making Minimum Credit Card Payments.

The Solution: 

Put a little aside every month to build up an emergency fund, if possible. A good rule of thumb is three to six months’ worth of expenses, depending on your assets, expenses, and lifestyle. Stay patient and keep in mind that even a small amount of savings can help to tide you over in the event of an emergency. 

Getting Out of Debt Is Possible

No one wants to stay in debt but sometimes becoming debt-free can feel impossible, especially if you’ve been struggling under hefty credit card payments for years. The good news is that you’re not alone, we’re here to help. Americor has resolved more than $2 billion of debt for thousands of clients – now it’s your turn. 

Tell us how much you owe and receive a free debt analysis from one of our certified debt consultants! 

Click here to apply: https://apply.americor.com/new

 

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