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How Do People Get Into Debt?

Drowning in debt? Consolidation Expert may be able to help. Get helpful guidance and advice on how to avoid getting into debt with our free resources. Learn more today.

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It’s easy to feel alone when facing overwhelming debt. But getting into debt trouble is far more common than you may realise. A wide variety of factors and life situations can cause debts to accumulate before you even notice.

Gaining insight into the most frequent reasons everyday people fall into debt can help you objectively reflect on what may have contributed to your own financial challenges. This guide from Consolidation Expert covers the top causes of debt in the UK – from minor missteps to major hardships – as well as some tips on how to get out of debt.

1. Unexpected Financial Emergencies

Life is unpredictable. Sudden large and urgent expenses can quickly deplete savings and force reliance on credit cards or personal loans to get by. Some examples of emergency situations that often lead to debt include:

  • Critical home repairs like fixing a roof or replacing a broken boiler
  • Costly car repairs due to a major mechanical failure or accident
  • Helping close family members or friends facing an emergency crisis with expenses
  • Unexpected travel needs due to serious illness, funerals or family matters
  • Pet health emergencies like surgeries or chronic illnesses
  • Legal fees piling up due to accidents, lawsuits, divorces, or other disputes
  • Having to suddenly replace stolen or damaged belongings

While no one can fully prevent life surprises, having a modest emergency savings buffer set aside can help minimise urgent high-interest debt reliance when the unexpected strikes.

2. Job Loss or Reduced Income

When your earnings drop out of the blue, living expenses quickly begin outweighing income. The growing gap often gets filled through relying on credit cards or other borrowing to temporarily stay afloat. Some common causes of lost income that lead people into debt include:

  • Losing a job due to layoffs, company closures, or other downsizing
  • Forced career change due to an entire industry declining or roles becoming obsolete
  • Developing health issues or disabilities that reduce ability to work full-time
  • Retiring without adequately planning ahead for reduced retirement income
  • Taking time away from work to support family members between jobs or dealing with health issues

Finding replacement income sources, whether through new employment, side gigs or government benefits, can reduce your dependence on debt during income shocks. Also, building up an emergency rainy day fund provides a cash buffer that can enable you to weather periods of lost wages without immediately resorting to costly loans or credit. Income protection insurance can also provide a valuable fallback, if you can afford it.

3. Emergency Costs While Travelling Abroad

Becoming injured, developing a serious illness, or getting into legal trouble while away from home inevitably incurs many added travel and healthcare costs:

  • Emergency overseas medical treatment and hospital bills in foreign countries
  • Flight change fees when having to alter or extend travel plans
  • Replacing lost or stolen critical personal items like passport, credit cards, luggage, etc.
  • Covering bail, fines, lawyers, and other legal expenses – especially in countries with very strict laws and penalties
  • Navigating complex international hospital admission and medical payment processes, plus insurance claims

While less common than other sources, these types of huge unexpected bills incurred overseas can sink personal finances without proper preparation. Maintaining comprehensive travel insurance coverage, securing travel credit cards before trips, and saving emergency funds helps guard against landing in debt when trouble strikes abroad.

4. Poor Budgeting and Financial Planning

Becoming overwhelmed by mounting everyday living expenses is a common reason that people fall into debt. It often comes down to unsustainable spending habits and lack of budget awareness:

  • Living beyond means with excessive unnecessary entertainment, clothing, and dining expenses
  • Frequently making impulsive purchases rather than carefully planned buys tied to financial goals
  • Not actively tracking where all money coming in and going out gets spent each month
  • Not adequately accounting for fluctuating or periodic expenses like insurance renewals
  • Not proactively revisiting financial plans and budgets as life situations evolve over time
  • Not keeping retirement, emergency fund, and other savings and investment contributions consistent

Avoiding or resolving ongoing money struggles can be difficult. It takes honest appraisal of actual income versus expenses, evaluating financial priorities, and adapting budgets to account for the curveballs that both life and emotions inevitably toss your way.

Debt doesn’t always stem from the unexpected. Often it is the result of undisciplined spending habits and lack of budget diligence.

5. Overuse of Credit Cards and Loans

It’s quite easy to slide into dependence on using credit cards, overdrafts or payday loans long term to sustain lifestyle instead of temporarily bridging emergency gaps:

  • Carrying excessive revolving credit card balances month to month and only making minimum payments, allowing substantial interest to accrue
  • Using credit cards and overdrafts to supplement chronically insufficient wages instead of modifying your spending habits according to your income
  • Continually taking out new payday loans to pay off existing debts in an endless cycle
  • Applying for more credit and retail financing despite already struggling with current debt payments
  • Not fully understanding how credit cards work – that interest starts accruing unless debts are repaid in full each month
  • Using credit cards and personal loans to finance unnecessary wants rather than just essential expenses

To minimise your reliance on loans or credit, you’ll have to break the cycles of persistent borrowing dependence. Use cards and loans selectively when necessary, and budget carefully to avoid overspending and getting into a debt cycle.

6. Lack of Financial Knowledge and Planning

Managing money wisely throughout life stages takes both general financial knowledge and mindfulness around planning for personal circumstances. Some common problematic knowledge gaps include:

  • Never fully grasping how interest compounding on debt magnifies balances exponentially over months and years
  • Not adequately understanding how various fees, penalties, interest rate changes, and other factors amplify debt costs
  • Failing to read agreements, contracts, and loan documents fully and closely before signing
  • Not periodically reviewing and adjusting insurance coverage needs as your life situation evolves
  • Not having basic estate plans or wills in place specifying how assets and debts should be handled in the event of death or incapacitation
  • Relying on assumptions and guesswork rather than seeking unbiased professional financial guidance

Don’t go it alone in money management and debt avoidance. Seeking out accredited financial advisors demonstrates proactive awareness and can supplement knowledge gaps that allow debt to escalate.

7. Costly Gambling Habits

Gambling, either socially or as a serious personal addiction, is a common yet rarely discussed factor that often fuels reliance on credit:

  • Repeatedly chasing losses, believing you can win money back or at least break even when chances are low
  • Using easily accessible credit cards or payday loans to fund gambling activities or recoup gambling losses
  • Hiding the full extent of gambling expenditures from loved ones despite growing debt struggles
  • Persisting in dismissing irresponsible gambling as harmless entertainment rather than acknowledging and addressing addiction
  • Believing in "lucky" rituals or probability misconceptions that feed a gambling compulsion

Getting help to overcoming a gambling problem depends on being honest about your issues, ideally before they escalate and cause irreparable monetary harm. Developing healthier gambling habits starts with setting affordable loss limits and sticking to them, rather than dipping into funds needed for other things.

8. Materialism and Trying to Keep Up Appearances

Overspending in order to flaunt luxury purchases as status symbols or keep up with others leads to ongoing excessive debt:

  • Purchasing overly expensive trendy clothes, cars, homes primarily as status symbols to impress others
  • Not wanting to cancel premium cable, club memberships, box deliveries, etc. due to feeling attached to the associated perceived prestige
  • Spending significant sums just to flaunt luxury on social media for attention, validation, and envy
  • Always upgrading to the newest high-end gadgets and electronics without a real need to
  • Hosting or attending lavish parties, outings and social events that are far beyond your budget

The path forward requires radical honesty with oneself on motivations. Focus purchases on genuine needs first, not showy extravagances. There is no shame in living and buying modestly while paying off debts. Joy comes from within, not materials.

9. The Financial Costs of Divorce and Separation

The monetary costs that come with dissolving marriages often fuel substantial debt reliance:

  • Significant legal fees racked up when divorces turn highly contested over assets and custody
  • Major expenses establishing two separate households after previously cohabiting together
  • Loss of pooled income, stretching budgets thinner and requiring increased borrowing
  • Excess spending due to emotional stress, or trying to “keep up” newly single lifestyles
  • General neglect of finances, missed payments, and debt avoidance during an overwhelming transition

Conscious household budgeting, compromising where possible, and proactively planning for single living expenses can help make starting over after divorce less costly.

10. Poor Money Management Habits Within Relationships

How romantic partners choose to manage their finances and distribute expenses can greatly impact couples’ risk of accumulated debts. For example:

  • One partner habitually overspends or hides purchases, impacting both partners – especially if you share finances
  • Vastly different spending habits and clashing budgeting philosophies
  • Maintaining mostly separate accounts leads to paying for family expenses unevenly at times
  • Failing to regularly discuss household finances openly and set shared goals
  • Not thoughtfully designating who covers what ongoing shared living costs
  • Avoiding candid conversations about money issues due to discomfort

Open communication and transparency can help to prevent these issues in relationships. Regularly review finances openly as a team and seek alignment based around your lifestyle and priorities. Always try to solve issues together – don’t let money undermine relationships.

11. Providing Financial Help for Family in Times of Need

Caring financially for children, parents, siblings, or other relatives during periods of serious need can test personal household budgets. Some examples include:

  • Taking over living cost support of unemployed, disabled, or retired elderly parents or relatives
  • Covering urgent medical expenses during a health crisis for parents, siblings, in-laws, etc.
  • Subsidising basic living expenses for struggling adult children in between jobs
  • Suddenly covering child expenses for nieces/nephews, grandchildren, etc. whose parents cannot provide
  • Formally taking in foster children or choosing to adopt children in need
  • Lending money to family members in repeated times of financial trouble but not being repaid as agreed

Seeking balance between compassion and enabling co-dependency is key. Provide care without jeopardising your own stability. Set clear boundaries and separate helpful guidance from endless handouts.

How to Get Out of Debt

Falling into difficult debt situations can be a result of a wide range of circumstances – some within one’s control and others arising from bad luck. It’s important to reflect honestly on what behaviours, events, or lack of awareness may have contributed to your current financial challenges without ascribing blame or shame.

Be kind to yourself and your situation as you work towards change. Objectively focus on positive next steps so you can steadily regain financial stability. With help and perseverance, you can overcome debt struggles step-by-step and rebuild a healthy money mindset.

If you’re struggling with multiple debts, consolidation can help you regain control. By combining multiple debts into a single loan, often with a lower interest rate, you can get back on track to financial freedom.

Apply With Consolidation Expert Today

Here at Consolidation Expert, our financial advisors know that everyone’s situation is unique, and there’s no “right way” to get out of debt.

Apply online to see if you qualify for a debt consolidation loan from our lending panel.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

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