• 10 Reasons You May Still Be in Debt

  • by Austin Quinn

Nowadays, it seems like debt is inescapable. Buying a home, car, or college education has quickly turned into an expense that few can afford without sinking into debt. If you’re struggling to pay back your debts and aren’t sure how you came to this point in the first place, consider the following reasons for why you might be plagued by debt.

    1. You Don’t Know How Much You Owe. Many people struggling under the weight of debt aren’t even sure how much debt they have. Because of this uncertainty, they don’t know how long it will take to pay off this debt and many of them don’t know where to start. If you find yourself in this kind of situation, write down a list of all your debts and choose which one you will focus on first. Many people recommend either paying the lowest amount of debt first or starting with the debt with the highest interest rate.
    2. You’ve Only Been Paying the Minimum. Making minimum payments every month will only prolong your debt. When debt is left unpaid on a credit card, interest will accumulate over time and result in you paying even more in the future. For now, paying more than the minimum might stretch your budget, but it will only benefit you in the long run.
    3. Your Mortgage is a Burden. According to the Federal Reserve Bank of New York, since March 31st of this year, nationwide debt on home mortgages has risen to $8.63 trillion – a $147 billion increase since the fourth quarter in 2016. As mortgage balances continue to rise, many homeowners will likely struggle with the weight of their home loans in the coming years. If your mortgage is a burden, consider downsizing, renting, or getting a roommate to help lighten the load. Alternatively, if you’d like to eliminate your mortgage entirely and continue to live in your home, consider getting a reverse mortgage. Keep in mind that you will still need to pay property taxes, homeowners insurance, and home maintenance costs.
    4. You Don’t Have an Emergency Fund. When disaster strikes, people often scramble to find a solution. Even if it means getting into debt. If you’re suddenly stricken by a debilitating illness or unemployment, you may have to take on debt just to stay afloat. Rather than make emergencies into even bigger problems than they already are, try to set up an emergency fund equal to two or three months of income. In the long run, this will help prevent you from taking on unnecessary debt.
    5. Your Loans are Too Long. If it feels like you’re going to be in debt for the rest of your life, the problem might not be a problem of too much debt. Rather, you might simply be afflicted with lengthy debts such as prolonged car loans or student loans. For auto loans in particular, it’s usually best to stick with the standard five-year duration rather than choose an option that will cost much more in interest over time. In general, managing your debt is largely a matter of managing interest.
    6. You Don’t Focus on High Interest Debt. To someone swamped with debt, it might feel difficult to part with the precious cash you still have for yourself. But, if you truly want to get rid of as much debt as you possibly can, sometimes you have to make sacrifices. Often, this means that you’ll have to follow strict budgets. However, it’s usually worth it in the long run. Clearing your debts one at a time can also give great satisfaction and feelings of accomplishment. Just make sure you are still making at least the minimum payments on your other debts while you work towards paying off one debt at a time.
    7. You Accumulate Late Fees. When debts pile up, sometimes you might find yourself scrambling to keep up and keep all payments current. If this happens to you, you’ll also likely begin seeing late fees accumulate and make the situation even more of a hassle than it already might have been. At first, these fees might seem like small change, but over time they will add up to a considerable sum. For those who have trouble making payments on time, setting up automated billing through your bank may be the perfect solution.
    8. Your Interest Rates are Too High. Simply put, high interest rates are the bane of anyone looking to get out of debt. When possible, ask for lower rates. As long as you’re paying on time and have a solid credit history, some creditors will allow a decrease. If credit card debt is becoming a struggle, try transferring this debt to a card with a lower rate. To protect your credit, do everything in your power to reduce your debt. Ideally, this process should begin for debts with high interest rates.
    9. You’re Living Beyond Your Means. When people spend beyond their means, they often do so in a futile effort to “keep up with the Joneses”. However, just because the neighbors are leasing a new Ferrari or some other luxury doesn’t mean they can really afford it. For all you know, they might just be trying to put on appearances themselves. Rather than let yourself fall into debt for the wrong reasons, remember that perceived social status is not worth the stress of severe debt.
    10. You Can’t Say No. Many people end up in debt because they have a tough time saying “no” to their kids, other family members, or even themselves. Sometimes this isn’t a big problem if you’re just buying an extra large coffee or another toy for your grandkid, but if you’re putting yourself in debt to fund an ivy league education for your nephew, you should reconsider your priorities. Your younger family members will have plenty of time to make a living and fund their major life goals, but you won’t have forever to prepare for retirement.

If you are struggling with debt, we recommend you speak with a financial advisor.