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Reasons for Debt...avoid these avoid debtConsumer debt is a growing concern in this country. With many households having in excess of $10,000 in consumer debt, what is the reason that some people have debt and others never carry a credit card balance? I can think of several reasons I may pull out a credit, but he days of carrying a balance are long gone. According to Bankrate.com here are the top 10 causes for credit card debt.

1. Reduced income with the same expenses

Unfortunately, this one happens all too often. You are used to a certain amount of disposable income each month. All of sudden, it is no longer there for one reason or another. It can be difficult to reign that excess spending in immediately, leading to a shortfall of income to cover necessary expenses and that are often charged to a credit card.

The sooner you change your spending to align with your new income the better off you will be. Learning to live below your income level will help you avoid this situation altogether.

2. Divorce

It is a well-known fact that more than half of all marriages end in divorce and the sad thing is that some people go through more than one in a lifetime. There are no easy answers to this one. The best thing you can do is sit down with your soon-to-be ex and try to agree on things. The more you fight about how things should be, the more money the attorneys will end up with…leaving even less for you in the end.

I have worked in both debt collections and the credit card industry and I can confirm the fact that many of the people I talked to about past due balances had a divorce in their past.

3 Poor money management

If you do not track your expenses, you might be surprised at where your money is going. You would be surprised how fast incidental expenses can add up. A meal out here and and a new pair of shoes there can equal big bucks at the end of the month. It could even mean having to pay for necessities with a credit card. Make a plan for spending and track incidental expenses to identify where your money is going and where you have opportunities to save money.

4. Underemployment

This is where you are making less than your expenses. The feeling is that you can spend now and catch up later, but this is not always the case. Get your expenses in line with your paycheck. If you increase your income, the money will be there to spend later.

5. Gambling

This one is somewhat scary. Gambling comes in many forms. It can range from nights at the casino to scratch off lottery tickets. It can be fun, loans are easy to get and it can very addictive. Having worked in the credit card industry, I have taken calls from people requesting to increase their line of credit and you could see where they had already spent thousands in a matter of a few hours. If you are going to spend a night at the casino. Set a budget for the night and leave your credit cards at home.

6. Medical expenses

Many people are fortunate enough to have insurance to cover medical costs, but insurance is covering less medical expenses in recent years. Even with insurance, out-of-pocket costs can be in excess of $5,000 per year.  Lapsed policies or no insurance at all can leave a person owing thousands with few options for assistance. A flexible spending account or an emergency fund are a few ways of being able to offset medical costs that may not be covered by health insurance.

7. Saving too little or not at all

This one really speaks for itself. If you do not prepare for the unforeseeable, it is most likely just a matter of time before it will catch up with you. Having 3 – 6 months in expenses will not only give you peace of mind, it will keep from having to borrow money to pay expenses.  If you do not have savings, it is not too late to get started. You will feel less stress as soon as you see the balance begin to increase.

8. No Money Communication Skills

It is important that spouses and partners communicate about how the money is being spent or saved for that matter. Having aligned goals makes for a strong relation. If you have joint accounts, discuss how the disposable income is going to be managed. Be open and honest about debt and credit cards. Money is the biggest reason that relationships break up. Whether you are a saver or spender, you can come up with a savings/spending plan that will work for both you and your partner.

9. Banking on a Windfall

Spending based on the bonus you are expecting or an inheritance can get you in trouble. Just because you are supposed to be getting money does not guarantee that you will. If it is not in the bank, spending it is not a good idea. If the money never comes, you could be putting future expenses on credit cards or borrowing money to cover the windfall spending.

Financial Illiteracy

Personal finance has grown more complicated over the years with credit cards being readily available and banking being done online. It is essential to keep track of payment due dates and bank balances to avoid fees. It is import to reconcile your checking account each month and to check your credit card statements for accuracy. Learn about investing and saving for a rainy day. Money sense is not always taught in the education system, but it is still your responsibility to figure it out.

Debt can be a huge source of stress and is usually avoidable with proper planning. Spend less than you earn and save something each month and you will be well on your way to avoiding debt and being financially stable.

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