5 Types of People Who Can't Avoid Debt


We get into debt for a lot of different reasons — some beyond our control. A job loss might force you to live on credit for several months, and if a major home repair pops up while you're unemployed, pulling out the credit card may be the only option. (See also: How to Weather a Financial Emergency)

Regardless of the reasons for it, debt can be a nagging headache — or much more painful. Some people dig themselves out of the hole and go on to live relatively debt-free or low-debt lives, but others aren't as fortunate.

If you can't seem to shake your balances, or if you pay off debt only to find yourself debt-ridden a few years later, you may be one of the following types of people.

1. People Who Have to Keep Up With Others

Ask yourself — do you feel the need to buy something just because others have it? It's an uncomfortable conversation to have with yourself, but the answer might shed light on why you can't avoid debt.

There's always going to be someone who has more than you, or who's able to do more than you. If you don't have a lot of money, yet you're constantly buying or doing things simply to look good to others, you're going to end up broke and in debt. It's a never-ending cycle. (See also: Is Peer Pressure Making You Poor?)

2. People Who Have to Have It All — Now

Who doesn't want to live in their dream home and drive their dream car? There's nothing wrong with reaching for the stars. However, a six-figure lifestyle on a $50,000 salary doesn't work no matter how you compute the numbers. If you're spending more than you're bringing in, you're probably using a credit card to close gaps in your budget. (See also: 5 Luxurious Substitutions That’ll Help You Save)

3. People Who Use Debt to Live the American Way

Getting a house, buying a car, and obtaining a college education typically involves some sort of loan. These types of debt are justifiable; and as long as you can pay the bills on time, they don't damage your FICO score.

This, however, does not mean it's OK to ring up credit cards buying things you don't need — although others may feel differently. (See also: What 20-Somethings Can Do About Their Credit Card Debt)

"The average U.S. household with at least one credit card carries nearly $15,950 in credit-card debt (2012), and personal bankruptcies have hit record highs in recent years," according to CreditCards.com.

Getting a handle on debt starts with changing your mindset. Debt might be the American way in some households, but it doesn't have to be your way.

4. People Who Don't Have a Savings Account

If you don't have a savings account, how do you expect to pay for unexpected expenses?

Nearly 44% of American households don't have enough in savings to cover basic expenses for three months in the event of a financial emergency like losing a job or paying for unexpected medical care, reports the Corporation for Enterprise Development.

And for those individuals living paycheck-to-paycheck with no savings account, "one misstep can lead to financial disaster," says Justin King, federal policy liaison for the New America Foundation.

With salaries unable to keep up with the rising cost of living, creating a comfortable nest egg isn't easy nowadays. From housing to health insurance, all your income may go to paying basic living expenses, which doesn't leave much for savings.

You might not be able to increase your income, but can you decrease your expenditures? If you could free up $200 a month, that's $2,400 a year in your savings account. It's most likely not the three to six-month cash reserve financial experts recommend, but it's a start. (See also: Which Type of Savings Account Is Right for You?)

5. People Who Don't Budget

When was the last time you re-evaluated your budget? Better yet, do you even have a budget?

"Budget" is an ugly word that implies financial restriction, and some people would rather go with the flow than sit down and create a weekly or monthly spending plan. But this approach can be extremely damaging to your finances. Without a clearly defined spending plan, it's too easy to overspend, at which time you may rely on credit cards to cover basic expenses. (See also: How to Build Your First Budget)

Love it or hate it, a budget can be your best friend if you're serious about financial management, which includes avoiding debt.

"Disciplined financial planning and good budgeting is really how successful people become and stay successful," explains Rebecca Katz, who serves as a principal in Public Relations and company spokesperson for Vanguard.

To get ahead, you have to first assess where your money goes and prioritize spending. It's only by putting your income and expenditures on paper that you can develop a plan to allocate more of your disposable income toward debt and savings.

Any other types of people who commonly fall into debt?

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