When someone has debt, it is not necessarily due to ignorance and recklessness. Sure, this is one reason, but by no mean it is the only one.
Here are a few more:
- Unemployment/underemployment: this is the fastest way to get into debt. For my first 4 years in Canada, I was consistently underemployed, i.e. underpaid, or unemployed, i.e. not paid. Since my earnings at the time did not allow me to save enough, I sometimes had to charge living expenses to my credit cards. Unfortunately, this is the norm for many recent grads and millennials.
- Divorce: even with an “amicable” separation, between the legal fees, splitting of assets and going from duo to solo, you can be left way behind financially.
- Sickness/disability: If you don’t have adequate insurance, any sickness or disability can wipe-up all your savings and leave you thousands of dollars in debt. It is important to have both extended health and long-term disability insurances in place. In Canada, the provincial healthcare plans do not pay for many items, such as medication. You can apply for sick benefits under E.I., but it won’t get you far.
- Poor money management skills: I am always surprised when people don’t know how much they make, how much they spend or how much they owe. If you don’t know these very important details, you will spend more than you earn, guaranteed.
- Drugs or gambling addiction
- Identity theft: this can happen to anyone and is both costly and time-consuming for victims. You can take steps to protect yourself.
- Little or no savings: Accidents, emergencies and shit do happen. If you don’t have an emergency fund, debt will be your only option.
No doubt there are plenty more reasons people are into debt, but these are very common.
The Money Savvy Blog 