When it comes to debt, every situation is different – but there are some common reasons that people fall into debt, and each requires a different solution. Some of these situations can be more easily controlled than others – but there is always a way out if you choose to seek help.
1. Lower income/same expenses
If you suddenly experience a drop in your income, you need to adjust your expenses to reflect this. Whether this means shopping at a budget supermarket, postponing that well-deserved holiday or refusing more and more social events, this is unlikely to be a pleasant lifestyle shift.
However, simple maths proves that if you have less money coming in, less needs to go out – otherwise you’re going to run up masses of debt. It might not be the easiest pill to swallow, but living beyond your means will force you into more debt, which could lead to a much longer period of austerity than was originally necessary.
You need to pre-empt a lower income with a new budget. Get a head start, and save as much as you can, while you can, in case of a rainy day.
Divorce can be a gloomy prospect to begin with – but bring in the financial woes that can accompany divorce and it becomes even bleaker. Many a divorce has been put off due to money worries – but this is surely not the best path to follow either!
The reasons people fall into debt through divorce are really numerous: from legal fees, the division of property and shared debts that need to be paid off asap.
To put it frankly, going from a two-income household to a single one is going to be tough – when costs can no longer be shared you may end up looking at the reduced income/same expenses conundrum above.
The best way to deal with this is really to sit down and rework your new budget – and then stick to it! If you’re struggling then a formal debt management plan will be able to help you balance and manage your debt.
3. Money management fails
Money management: some of us are great at it, while others just want to run away from the letter box and bury our head in the sand. For the latter group – debt can become a serious problem if not simply tackled head on. And it’s often a lot easier and less stressful than panicking about your money worries and when your debt will catch up with you from month to month.
To avoid getting into debt (or back into debt) creating a budget and staying vigilant will do wonders when it comes to not splashing more cash than you’re earning. Keeping a record of what and where you’ve spent your money will also help you to work out where you need to cut down, or be a bit stricter with yourself.
Illness is one of those debt-causing life events that is horrible on a number of levels. Medical expenses can be a significant strain on any budget, and if your illness means you have to stop working and survive on benefits at one of the most difficult times of your life – this is a recipe for debt disaster.
Again, staying financially afloat largely depends on accepting this change to your income, and changing your lifestyle to accommodate it. It is also worth seeing financial experts to see what benefits you’re entitled to – it might be more than you think!
5. Spending ‘future money’
The less disciplined among us sometimes like to time travel to the future where they can spend the money they don’t have in the present. Depending on windfalls and spending next month’s paycheque ahead of time is a surefire way to find yourself in debt.
You might really want that new outfit/night out right now – but when it’s swallowing up next month’s wages, will it seem worth it then? Unlikely.