How did I become over-indebted?

The first thing that clients need to realise is that anyone can fall into the trap of accumulating secured and unsecured debt.

Having debt is nothing to feel ashamed of, as with the help of DebtBusters ability to provide substantial advice on how to manage debt, as well as a positive attitude, you’ll be on your way to a debt-free life in no time!

People generally fall into one of two categories when it comes to experiencing debt problems:

1. Overnight debt problems 

Clients experience a rapid onset of financial difficulties and debt problems, due to an accumulation of unfortunate circumstances, such as job loss, divorce, gambling and severe medical issues resulting in high bills and the inability to work.

- Unemployment or Reduced Income

A sudden loss of income or a decrease in earnings can significantly impact financial stability. Whether due to job loss, business failure, or salary cuts, a decrease in income can make it challenging to meet financial obligations, leading to reliance on credit to bridge the gap.

- Unexpected Life Events

Life is unpredictable and unexpected events such as medical emergencies, job loss, or divorce can wreak havoc on finances. Without adequate savings or insurance coverage, individuals may resort to borrowing to cover expenses, leading to a cycle of debt accumulation. 

2. Slow and steady debt problems 

Clients slowly accrue secured and unsecured debt over an extended period of time, by casually using credit cards for small purchases that they don’t have the cash to pay for.

Alternatively, clients occasionally make larger purchases such as new vehicles or a mortgage and fall into debt due to the occurrence of unexpected expenses or changes in income that make it impossible to meet debt commitments that were previously manageable.

- Overspending and Impulse Buying

In today's consumer-driven society, the pressure to keep up with trends and lifestyles can lead to overspending. Impulse buying, fueled by easy access to credit cards and buy-now-pay-later schemes, can quickly spiral out of control. Failure to distinguish between wants and needs can result in accumulating debt far beyond one's income level.

- Mismanagement of Credit

Misusing credit, such as maxing out credit cards, making only minimum payments, or ignoring due dates, can lead to mounting interest charges and penalties. Failure to manage credit responsibly can quickly result in overindebtedness and damage to one's credit score.

- Financial Dependency

Relying too heavily on credit to meet everyday expenses can create a cycle of dependency that is difficult to break. Without addressing the underlying issues contributing to financial instability, individuals may find themselves trapped in a cycle of debt with no clear path to financial freedom.

Other reasons people become overly in-debted 

High Cost of Living

Rising living costs, including housing, healthcare, and education expenses, can put a strain on household finances. In an effort to maintain their standard of living, individuals may resort to borrowing, unaware of the long-term consequences of taking on excessive debt.

Lack of Financial Literacy

One common reason for overindebtedness is a lack of financial education. Many people are not adequately equipped with the knowledge and skills needed to manage their finances effectively. Without a solid understanding of concepts like budgeting, saving, and debt management, individuals may make uninformed decisions that lead to accumulating debt beyond their means.

Debt usually falls into two categories:

1. Unavoidable Debt

In certain instances, individuals can't avoid debt due to differing circumstances. As mentioned above, there are times when an unexpected change causes difficulties in paying off old debt commitments.

2. Avoidable Debt:

For every one who has accrued unavoidable debts, there are likely to be 10 who are in over their heads in debt that could have been avoided.

These are people who have relied on credit cards to stretch their income a little further, but over time with the help of excessive credit card interest rates and late fee charges, found that they were suddenly having difficulty keeping up with all of their expenses. Many people use credit when they don’t have cash available and don’t take the time to consider how long it will take to pay off that impulse purchase.

Whether you are in debt because of unavoidable situations or avoidable circumstances DebtBusters has a solution for your individual set of circumstances.

Struggling with debt? 

If you are struggling with debt, are overwhelmed with finances, and feel you cannot afford to rent a place then you could benefit from debt counselling! 

For more information on Debt Counselling and DebtBusters contact a debt counsellor on 086 999 0606.