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Most Common Causes of Bad Debt

                It seems like anyone these days can find themselves buried in debt. Whether it's from the economy, personal circumstances, or something else entirely, bad debt can find anyone at any time. If you are worried about eventually being in debt, it is best to know some of the ways it is most likely to occur. By being aware of the causes, you can try and take steps to prevent it from happening to you. Below are some of the most common causes of bad debt that people encounter.

1.       Bad Budgeting – Another common step that leads to debt is poor budgeting. When you spend more money than you have, debt is inevitable. It is important to always analyze your finances, and to be sure that you are spending within your means. Even if you are already in debt, budgeting your money is a great first step to climbing out of it. If you need help with budgeting, there are sites you can check out like Money Advice Service.

2.       Low Income – This one affects people who have recently taken a pay cut, or gotten a lower pay check than they were expecting. When this happens, people tend to keep spending like they were before the pay decrease occurred. This quickly cuts into their savings and sooner rather than later they find themselves in debt. If this has happened to you, try re-budgeting your lifestyle to fit your current pay level.

3.       Relying on Credit Cards – Whenever you use your credit card, make sure it is something you can pay off within a month. Don't let those credit card charges build up over time, or it will become harder and harder to pay back. Also, try to only buy things you need, not just things you want. If you put too much on your credit card, the amount you owe will keep adding up and it will be harder to pay back.

4.       No Financial Communication – Talking about money can be hard for couples, but it is an important step to staying out of debt. If one partner is spending money without informing the other, debt can start to accumulate. It is always important to let each other know what you have to spend and what you are spending money on.

5.       Divorce – Getting a divorce is a very expensive process. Between lawyers and settlements, you end up losing a lot of money in the process. If divorce is unavoidable, consider some cost saving methods like signing a prenuptial agreement or finding low-cost legal services.

6.       Gambling – While gambling can be fun in moderation, it can quickly lead to debt if it gets out of hand. If you think you might have a gambling problem, there are places you can go to talk to someone to help you out. If you live in the UK, you can look at the NHS site for more information on gambling addiction. You won't be able to get rid of your debt until you get rid of the underlying problem.

7.       Little to No Savings – Preparing for the worst is always a good idea. You never know when unexpected costs are going to arise, so prepare for them now while you can.

When it comes down to it, the major factors in debt are not planning ahead. To avoid debt, you should start building up your savings, never spend more than you can afford, only use your credit card if you can pay it back within a month, and lastly budget all of your finances. If you can do these few things, you should be able to avoid debt, barring some unforeseeable large expenses.