Common Reasons You’re in Debt (and What to Do About It)

A recent report from Magnify Money revealed that Americans have already paid $104 billion in credit card interest this year — 35% more than we paid five years ago. Americans carry an average of $687 billion in revolving credit card debt, and the average balance for consumers with a credit card is $6,348. Ouch!

And it gets worse than that, considering many of us also struggle with soul-crushing levels of student debt, huge car loans, home loans we can’t afford, and more. Borrowing money has become the American way somehow, yet few of us know how to change our ways or get our spending under control.

But, if you dig a little deeper to find the source of our problems, it’s not that hard to figure out why we spend so much. While some people are simply struggling and there are a broad range of economic factors that make it harder for certain populations to get ahead, we create many money problems for ourselves.

5 Reasons You’re in Debt

If you’re just the average guy or gal in good health who is struggling to keep up with bills, there’s probably a reason why. Here are a few likely explanations:

You’re not using a budget or trying to track your spending.

If you’re in debt and you’re not trying to budget your money, you’re not helping yourself. A budget doesn’t have to be complex, but you should have a basic idea of how much you earn and how much you spend every month.

The fix: Break out a pen and paper and go through your last few months of bank statements and credit card bills. Write down all your recurring expenses along with fluctuating categories like food and entertainment and tally up what you’re spending each month. Also determine your monthly take-home pay so you can compare your spending to your income. Hopefully you’ll spot areas where you’re overspending so you can take steps to change.

You’re lacking an emergency fund.

A recent survey from Bankrate showed that nearly a quarter of Americans have no emergency savings and another 22 percent have less than three months of emergency savings set aside. It’s no wonder we’re struggling with debt when we don’t have money for surprise expenses and bills. When you face an expense you can’t cover with savings, it’s far too easy to cover the bill with a credit card and worry about it later. Right?

The fix: If you don’t have money saved for an emergency, don’t be afraid to start small. While most experts suggest you save six months of expenses to cover a surprise illness or job loss, even having $1,000 set aside will help. Open a high interest savings account and start stashing whatever you can into it each week or on payday. With enough time, you’ll build up a solid e-fund that can save the day when life gets messy.

You had to borrow money for college.

So, you had to borrow money for college. This is unfortunate, but it’s also extremely common. Student Loan Hero notes that the average Class of 2017 college graduate left school with $39,400 in debt. No matter how you cut it, that’s a huge amount of cash to have to pay back.

The fix: There’s not a ton you can do to get out of student loans other than pay them off, unless you’re working in the private sector. Still, you can at least consider refinancing to get a lower interest rate provided you don’t plan on using federal benefits like income-driven repayment programs, forbearance, or deferment.

Speaking of income-driven repayment, you might qualify for a program like PAYE or REPAYE if your income is low enough. Since income-driven repayment programs let you pay only a fraction of your discretionary income for 20-25 years before forgiving your loan balance, they can be a great deal.

You use credit cards as a crutch.

Credit cards are convenient to use, but they can get you into trouble if you’re not careful. After all, using credit cards to buy things you can’t afford can send you into a debt spiral that is difficult to get out of. The more you spend, the higher your monthly payment goes.

The fix: If you’re using credit so much your balances keep growing every month, you have to stop digging — and quick. Stash your credit cards away in a sock drawer and stick to cash or debit instead. You can also think about picking up a balance transfer card to get 0% APR (zero interest) for up to 20 months.

With 0% APR, your entire monthly payment will go toward your balance each month. But remember, you have to stop using credit cards for this strategy to work!

Also, make sure you’re giving your credit score the attention it needs. Use a free annual credit report to keep track of your credit score and monitor how your credit card debt may be affecting it.

Your income is lower than your expenses.

If your expenses are higher than your income, you may have an income problem or a spending program — or both. Unfortunately, you may need to overhaul your finances substantially to work your way out of this situation. You have to reduce your expenses or boost your income — there’s no way around it.

Start by looking at your spending from prior months using the strategy we outlined above. It’s possible you’re spending way too much on food, entertainment, or hobbies, and you don’t even know it. If there’s a category you can make substantial cuts in without too much pain, you could be on the road to spending less in no time.

Also look for ways to boost your income. Perhaps you could pick up more hours at work, or maybe you could start a new side hustle. Anything you can do to bring in more money each month can help, particularly if you cut your expenses at the same time.

The Bottom Line.

If you’re in debt and tired of it, there’s a good chance you could help your situation with a few simple steps. But it all starts with looking at your finances — and your life. Tracking your spending, taking time to create a budget, and giving up credit cards can go a long way toward turning your situation around, but these strategies won’t work until you’re ready to change your life.

The views and opinions expressed in this video are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.