There are many reasons why you might find it difficult to get out of debt. When you find yourself with debt you are struggling to pay off, either through poor spending habits or very often unforeseen circumstances, there are often a multitude of reasons why you are unable to get on top of the situation.
Some people are trying to get out of debt on a low income, others are trying to get out of debt because they have spent beyond their means.
In order to retake control of your financial situation, it is important for you to identify the reasons why it can happen. As such, we have compiled a list of some of the reasons so many people find themselves in debt. Many of the reasons in our list can be applied to a number of different types of debt, and explain why Australians find it so hard to get out of debt.
1. Poor budgeting
Poor budgeting can be a major contributing factor as to why you are struggling to escape debt. When you fail to make an effective budget for yourself, the chances increase that you will overspend on certain things, or even buy items you actually cannot afford. When this happens, you leave yourself with less money that you could put towards repaying debts.
It is also important to prioritise your essentials within your budget. Food, bills, rent, mortgages etc, are things that absolutely need to be paid, so trying to squeeze in wants with the same amount of priority as your needs can lead to some bad budget outcomes.
2. No budgeting at all
Another aspect of this issue is the fact that many people don’t actually create budgets for themselves at all. If you are both stuck in debt, and also not following a budget plan, you can find your expenses are out of control, because there is no system limiting when or how much you spend. In addition, not having a budget means you have actually missed the opportunity to allocate a certain amount of your budget to debt repayments.
3. Financial lifestyle
Maybe you go to restaurants three times a week, or buy a brand new phone every year. It can be difficult to change these habits, but ultimately, when you don’t adjust your lifestyle to your financial reality, you will find it very difficult to get out of debt. The positive, however, is that the sooner you become debt free, the sooner you can spend your money on things you will enjoy, rather than making car repayments or paying off phone plans. And of course, you should do so with the kind of caution that will stop you getting back into debt.
4. Rising expenses with rising salary
So many of us also raise our expenses proportionately to a rise in our income. Unfortunately, you can remain stuck in debt because once you are in a certain spending habit, it can be hard to adjust, even when your life circumstances change. Most of us get quite used to the lifestyle we lead, and this is true for the way we spend money as well.
Of course, rising expenses often means rising debts, and should you have a reduction in your income, suddenly you can be in a much worse financial situation. Obviously it is difficult to get out of debt on a low income, but regardless of how high your income, if you get into debt you may not be able to repay, you are risking your financial future.
5. Unforeseen expenses
A lot of people – especially those in debt – don’t have money in reserve in case something unexpected happens, like a family emergency, or your car needs urgent repairs. For those in debt, sudden expenses can be crippling to an already stressful financial situation. Whilst it can be difficult to find spare funds to set aside for emergencies, especially when you are trying to pay off your debt, by having this organised, it can ensure you are prepared for unexpected situations. This can therefore stop your debt from spiralling further out of control when those unexpected expenses arise.
6. Making minimal repayments
Often when you’re stuck in debt you can struggle to prioritise their repayments. This can either be by not paying certain debts off at all, or simply by not taking the opportunity to make repayments when they arise.
Some debts might require minimum repayments on a monthly basis, for example. You might get in the habit of only ever making the minimum repayment, even when you have the opportunity to pay more. When you don’t take the opportunity to pay a little extra, often you spend your money on non-essentials, and your debt takes longer to repay.
7. Not having a debt payment plan
One of the things that will keep you in debt is not having a clear plan for which debt you are trying to pay off. A problem with a large collective debt can be that there are many different places you have to make repayments. The result is often that certain debts remain unaddressed, and you can accrue further debt through interest rates by not making repayments on time.
There are a number of different strategies you can implement to pay off your debt, and the best one is always based on your situation. Some people take the approach of putting their debt repayments all into one major debt, when they have a lot of other smaller debts. This can potentially be the right move, but it all depends on interest rates. For example, you might have a credit card debt that you could realistically pay off in two months, but are focussing on another debt because there is so much of it left to pay off. But if the credit card has a high interest rate for late fees, you might be better paying that off first, as it could stop you paying more than you need to overall.
We can tend to get into the habit of signing up for a lot of subscription services. There are so many services now we are able to pay for through direct debit, and often the convenience means we are happy to pay the price. The problem is how easy it is to accrue hundreds, or even thousands of dollars of direct debits per month. Unfortunately, because we get so used to having these services, it is difficult to give any of them up.
With an ever-increasing plethora of options for television subscriptions, for example, our entertainment needs can be met so easily. However, when you are experiencing debt problems, if you have too many subscriptions, you are ultimately making it more difficult than it needs to be to make debt repayments. Those unable or unwilling to drop certain subscriptions are leaving less room in their budget to get a handle on their debts.
9. Resignation to your debts
Some people can have so much debt, or be stuck in it for so long, that they start to think it is no longer possible to be free from debt. When debt problems become severe, some people are too afraid or too proud to seek the help that they need, or they simply do not know where to turn. If you feel overwhelmed by debt, then it is highly advisable to seek financial support.
Debt Negotiators can help
If you are struggling to get out of debt in Australia there are different strategies you can use to start taking control of the situation. Take a look at our Debt consolidation loan calculator, or you can read our Step-by-step Get Out of Debt Plan to start building a strategy to tackle your debts.