Table of Contents – 10 Most Common Causes of Debt
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More reading in this category:
– Top 10 Devastating Reasons You May Need Your Financial Safety Net
– 20 Valuable Ways That Will Empower You to Avoid Debt
Here are 10 common ways people can get into debt:
1 – Credit Card Overspending
Regularly spending more than one can afford and only making minimum payments can quickly lead to high-interest debt. The question becomes: Did you really need to make that purchase? Here’s some reasons people usually fall into the trap:
| Reason | Explanation |
| Impulse Purchase | You didn’t plan on doing it but all of a sudden you saw a thing you wanted and swipe… |
| Keeping up Appearances | You want someone, people, or a general appearance of having more money. Therefore, you end up spending more to appear as though you can afford things. |
| Emotional Spending | Feeling sad? Bored? Maybe stressed out and need to feel better? At the root of the spending sometimes there’s an emotional thing going on that the shopping is making up for. |
| No Budget | When you don’t track your money, sometimes you can end up in a hole that you didn’t realize you were about to step in. |
| Easy Credit Card Access | The reward in buying comes first with the regret to happen later on. When the card is easily accessible, it is easy to use. Is it feasible to leave the card at home? Other common ways to combat this are freezing your card digitally, putting your credit card literally in the freezer, and the most effective with cutting up the card [3.] |
| You Want to Be Cool Too / You Really want to hang out with … | Sometimes you know or are around someone or a group of people that are heavy spenders and in order to be around them you have to fork out your share of expenses. |
| Not understanding how interest works | You were never taught how interest works and how it can compound quickly in the wrong direction. When you let interest build up it really works against paying down debt and you end up paying a lot more for an item than you would have in the store. |
| Cashback / Points | Spend x amount of dollars to earn this amount of points or this amount of money back. How many times have you fallen for the trap? |
| A legit emergency | You really had an emergency and no other way to pay for it (no savings to pull from.) |
| Only paying the minimum | When you only pay the minimum you never truly get your balance down and end up racking up more debt. |
2 – Medical Expenses
Medical bills can be large, expensive, and hard to handle. Here’s a few reasons why this happens:
| Reason | Explanation |
| No Insurance | Paying cash for a medical expense can sometimes be beneficial but often the cash price can be well out of a manageable range without insurance. |
| Deductibles and Copays | Even with insurance sometimes these can be more than one can afford or at least put them in a bit of a hole. |
| Medical Emergency | If it’s a life or death situation or a necessary yet unplanned event it’s likely going to cause a stink in your finances unless you have an emergency fund in place to cover the cost. |
| Chronic Illness | Long term care and chronic illness are sadly common reasons for ending up in debt. |
| Out of Network (as it pertains to the United States) | As if insurance is not complicated enough, sometimes you end up in a situation where you picked a provider that was out of the network of what the insurance will pay. The cost of this will be different and likely eat into your wallet. |
3 – Student Loans
So you want to be a doctor or a lawyer? How will you afford it? Often the answer is student loans. Here are some of the top reasons people end up in student loan debt.
| Reason | Explanation |
| Tuition is high | This goes back to the doctor and lawyer career. These degrees are typically very high and take a while to repay back even after you get into your career field. |
| Not enough financial aid | While any type of financial aid helps, often it is not enough to cover the full cost of tuition |
| Not planning out finances and options | Not researching multiple schools and cost comparing or just not planning finances in general |
| Length of Time | You planned on going to school for two years and now you’re going for four. Or in general, you didn’t take into account what the extended period of time might look like or time was not a factor in your planning. |
| Living Expenses | Taking on debt to pay for living expenses that adds onto the loan. |
4 – Car Loans
Financing expensive vehicles with long-term loans can stretch budgets, especially if the car’s value drops faster than the loan balance.
| Reason | Explanation |
| Car Accident / Totaled Car | Sometimes the loss of an old car can prompt getting another one, leading to taking on a car loan. |
| Unable to pay in cash | This is likely going to be most people. After all, how many people can walk into a dealer and say what is the cash price? |
| Your current one has too many issues | When a car becomes unreliable, often the first thought is to get another one…hence the car loan. |
| Not being realistic about your situation | You can afford an inexpensive car but not the one you got the loan for. You may be able to afford a car but what kind of car and under what terms? |
5 – Mortgages
Taking on a mortgage that’s too large for one’s income or financial situation can lead to financial strain and potential foreclosure.
| Reason | Explanation |
| Overestimating your income vs expenses | Not understanding what’s coming in and what’s going out is so important when deciding on big purchases. |
| It’s your dream home | White picket fence, pool in the backyard, fireplace, convenient neighborhood, etc. It’s perfect and you just want it. |
| All Those Confusing Terms | It’s almost another language you have to learn when trying to understand all the ins and outs of owning a home. |
| Easy money borrowing | Sometimes lenders can make it very easy to have access to money, enhancing the idea that you will be able to afford it. |
| Intent to Rent it Out | Sometimes the idea of making money on property looks great until you’re in the weeds and dealing with some of the problems that come with this type of investment. |
| Adjustable Rate Mortgages | These are just like they sound. The rates can adjust and can quickly become unaffordable when the change kicks in without expecting the financial hit or lack of room in the budget. |
| Listening to Others | Lenders and realtors can give great advice, however, they are usually wanting to earn profit off of your purchase. Ensure you do your own research and take into account others possible bias. |
6- Job Loss or Reduced Income
Losing a job or having hours/pay cut often forces people to rely on credit to cover living expenses.
| Reason | Explanation |
| Performance Problems | Not everyone excels at everything but it can catch up to you if you have clear performance issues at work. This can lead to eventual reprimands and job loss. |
| Layoffs | Unfortunately it happens to many people and you won’t always know when it’s coming. A company may have to decide to let some employees go and you could be on the list. |
| Technology | With the invention of AI, this is a growing concern. Technology has slowly changed the way people work and can end up with companies relying on technology to do the jobs humans once did. |
| The business goes out of business | Sometimes a business can decide to close up shop…and unfortunately you were in the shop. |
| Location | Some jobs end up moving positions or locations outside of where you originally got the job. |
| Another company bought the company | Your employer may get bought out. When that happens, change is surely incoming. With those changes sometimes jobs shift or get repurposed. |
| Health | Unfortunately health can be an issue for anyone. If it becomes really dire, it could hinder your ability to keep and hold a job. |
7 – Poor Budgeting
Failing to track spending and plan for bills can lead to overdrawn accounts and reliance on credit.
| Reason | Explanation |
| Too Busy | Sometimes a lack of time to sit down and do the budget is a thing. There’s always a reason that can be found not to do it. |
| No plan, no problem | Some have the mindset that they don’t need to track their spending because they feel they make enough money to do without it. |
| Not steady income | If your income is not as steady as you like, you may indeed not know exactly how to account for planning each month. |
| Lack of goals | When you don’t have something you are working toward, you may not see a need to track anything because there’s no target to aim for. |
| You are not sure how | Lack of financial education on how to do a budget |
| Overwhelming | Getting a clear picture includes accounting for everything going in and out and getting all of that in one place. When doing it for the first time it is typically daunting to see what everything looks like and how to keep track of it. |
8 – Divorce or Separation
Legal fees, division of assets, and reduced household income can create financial instability.
| Reason | Explanation |
| Splits 1 household into 2 | Where there was once two incomes, now these have to be split into one income per household and separated. |
| Legal and court fees | It takes money to get divorced. If there are already financial struggles, this is just another hurdle on top of what is already there. |
| Discounted services get pulled apart | Healthcare, Car insurance, etc. can be discounted and bundled when on the same plan. Once these are separated, you’re back to paying like a regular human. |
| Child Support | If children are in the mix, often one spouse will have to account for the money needed to pay for child support. |
| Division of assets | When couples purchase things together, it may not be so easy to split them apart. Kind of like a house or a car. |
| Job changes | When someone moves out from living with their spouse or partner, the job situation could change. You may need to make more or find a job living in another location. This could cause some financial shift one way or another. |
| Emotional distress | Shopping because it makes one feel good happens often but it won’t help your finances if you cannot afford it. |
9 – Business Failures
Starting or running a business without adequate capital or planning can leave individuals personally liable for debts.
| Reason | Explanation |
| Lack of Awareness | You may not know what all needs to go into paying for the business or may have forgotten to account for an aspect of it. |
| Overconfidence | You know your idea or business is destined for success – or so you thought. |
| Limited Funds | You have funds but may not have access to the amount you actually need to run everything. In addition, you must learn to make cash flow projections that will help you decide how much money you can afford to spend and warn you of impending trouble [2.] |
| Lack of planning | You jumped into the idea without doing proper planning, especially on the financials. |
| Timeline of Expecting Profit | You were certain you would make profit in 1 year, when in reality it’ll take 3 years. |
10 – Impulse Purchases or Lifestyle Inflation
Trying to “keep up with the Joneses” or indulging in luxury purchases can lead to spending beyond means.
| Reason | Explanation |
| Culture | Because it’s cool to look and act like you have a ton of money in the current culture / environment. |
| Embarrassed of their situation | Some are ashamed of the situation they have landed in. Rather than admit it, accept it, and take the lifestyle reduction they try to keep up with the lifestyle they are used to. |
| Denial | You pretend like your current situation is not what it is perhaps because you don’t want to deal with the reality and work it’ll take to get yourself out of it. |
| Impressing Someone | Maybe you are trying to pull off a look for someone in particular that you are trying to attract as a friend, partner, etc. |
| Social Media Appearances | Just because someone posts something that makes them look a certain way, doesn’t mean that is their reality…but they may want you to think so. Don’t fall into the comparison trap! [1] |
References
1 – Sethi, R. (2025, May 1). Is lifestyle creep killing your rich life? How to spot and stop it – I will teach you to be rich. I Will Teach You To Be Rich – by Ramit Sethi. https://www.iwillteachyoutoberich.com/lifestyle-creep/
2 – Parfrey Murphy Chartered Accountants. (n.d). Top 10 reasons Small businesses Fail | Parfrey Murphy. Parfrey Murphy. https://parfreymurphy.ie/top-10-reasons-small-businesses-fail/
3 – LLC, Loan. Lawyers. (2021, January 20). Trying to Avoid Using Credit Cards? Here is How to Do It. Loan Lawyers. https://www.fight13.com/trying-to-avoid-using-credit-cards-here-is-how-to-do-it