There are several reasons why people are in debt that I find reasonable. Some situations are beyond your control. Medical bills, student loans or purchasing a car are a few reasons that are acceptable. Investing in yourself is another major reason I have seen people purchase with debt and I have seen said investments pay off. But there are unacceptable reasons people get into debt. I thought of 11 common ways to get into debt.
#11 Credit Card Reward Points
Reward points for spending more money on your credit card spans across all major credit cards and companies. The more you spend the more points you accumulate. You can use the points for travel miles, items or cold hard cash. People can use this properly by using the credit card and automatically paying it off. However, sh*t happens occasionally and priorities change. This is how it becomes possible to get stuck in credit card debt. Stay away from the luring shiny rewards. Credit card companies are not offering the points for your benefit but laying out a candy trail in hopes you spend too much.
The average wedding cost in United States comes to $26,645, not including the honeymoon. That’s a lot of mula to pay for just one event right? Coming from experience a wedding is not a good reason to get in debt for multiple reasons. Skip out on the tin drum band or the photo booth if it’s not in the budget. Focus on your partner, enjoy each other and avoid the stress of paying for a high cost wedding. Starting a marriage in wedding debt can’t be fun and statistically have higher divorce rates.
#9 Luxury Vehicles
Last week I had an interesting conversation on Instagram about whether a vehicle is an acceptable reason to get in debt. I still stand by that it is but the type of vehicle is a different story. Purchasing a vehicle outside of your budget places your wallet in a strain. Always shop for a vehicle you can afford on a monthly basis or buy it in cash.
#8 Luxury Items
Similar to luxury vehicles, people find themselves in debt for purchasing top-notch items. For example, a couple needs a new bed which is necessarily essential. Being that we are in America the couple is presented with hundreds of options ranging in all prices. At that moment comes the tough decision of purchasing the bed you can afford in cash or have to make monthly payments on. Granted the high end bed provides heated massages but that is a large luxury cost to get into debt for.
#7 Not Calculating ROI
Investing in yourself is extremely important. I encourage this 365 days in a year. Opening a business or pursing higher education can potentially increase your income and hopefully net worth down the road. However, not calculating the return on investment (ROI) is pure laziness. Earning a degree in Medieval Mid-Century History may cost $50,000 but have a low chance of finding a job. Another example is a business. Opening up a business is hard work and requires countless hours to make a profit. So before you open a loan do your due diligence when calculating the ROI and plan accordingly.
#6 Impulse Buying
Spending is an emotional process. During Christmas thousands of buyers go into debt to afford gifts for others out of pure love. Buyers go into debt after a shopping spree to feel better as well. None of these are good reasons to go into debt, especially for material items. If you are guilty of this, practice a 24-hour rule. Before making any big purchase you use 24 hours to decide if it’s a smart or impulsive purchase.
#5 Same Day Loans
With a passion I hate companies that use predatory lending. To name a few we have Quicken Loans, Amaco and Pay Day Loans. These companies do not check credit scores, payment history and will issue a certain amount to the loan receiver. In the loan contract will include high priced late payments, collateral clauses and outrageous interest rates. If it comes down to an emergency I beg you to check other resources first. Ask family, look for a quick job or sell some junk around the house. These same day loans will only lead to more debt.
“If someone tells you no
credit check be cautious.”
Being that I’m dealing with millennials I expect to get some feedback on this. Millennials love to travel and believe it is important to experience cultures. I find that to be true but this is no reason to pay for a trip to Italy on a credit card. You enjoy the vacation, come back home, and still have to pay for the trip plus interest. I suggest starting a traveling fund, monthly payments or finding less expensive ways to travel. We can afford anything but not everything at one time.
#3 Spiraling Debt
This may be a new term for most but this is a domino effect after purchasing one affordable item. Purchasing a 60” TV you can afford is acceptable. But then the need to get updated speakers to match the TV is a must. Might as well buy a few more movies to watch. Oh, don’t forget about a larger TV stand. Ah, most importantly upgrade the cable package because you can’t watch basic channels on such a beautiful HDTV. Your initial purchase leads you spiraling into debt for matching items.
#2 Family & Friends Co-Loans
Dave Ramsey hit this topic the best. DO NOT lend to family or friends. Give money willing and don’t expect for it to be repaid. Avoid the awkward dinner table talk of how cousin Jim still owes you $1,000. If you have the surplus cash and want to help out a loved one send it as a gift and not a loan.
#1 Impressing Others
Keeping up with the Joneses is for baby boomers, millennials face Keeping up with the Kardashians today. We live in a sharing world. In the past people only felt the need to impress others when going outside your home. Now social media has given us 24-hour access to everyone in the comfort of our home. We only see the positive pictures of vacations, bottles, homes and everything going right in their lives. Impressing others can lead to a lifestyle outside of your means and should be avoided. I won’t go into too much of a rant here but you can click here to read more on my thoughts on the subject.
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