Our Turbo blog recently published an article highlighting the top reasons why people are in debt along with suggested fixes and next steps. The five categories include: Not using a budget or trying to track spending Lacking an emergency fund Borrowing money for college Using credit cards as a clutch Incoming is lower than expenses Can you relate and have you gone into debt for any of these reasons? If so, where are you on your debt journey? People go into debt everyday for a number of different reasons and whether you’re looking for advice or you’ve been through it yourself, we would love to hear from you.

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MariP

Question

Featured Discussion: Common Reasons You May Be in Debt

Forum|Forum|7 years ago
September 6, 2018
59 replies
0 views

Our Turbo blog recently published an article highlighting the top reasons why people are in debt along with suggested fixes and next steps.

The five categories include:

Not using a budget or trying to track spending
Lacking an emergency fund
Borrowing money for college
Using credit cards as a clutch
Incoming is lower than expenses

Can you relate and have you gone into debt for any of these reasons?

If so, where are you on your debt journey?

People go into debt everyday for a number of different reasons and whether you’re looking for advice or you’ve been through it yourself, we would love to hear from you.

Other

Carl11_2

If I may contribute to this thread:

Getting out of debt, regardless of just how deep in debt you may be, is a six step process. I've also included 3 additional steps for building wealth, once the first five steps are completed. Basically, steps 7, 8 and 9 are done pretty much in unison with each other.

Step 1 - STOP DIGGING! If you really want to get out of debt, then the absolute first thing you must do is stop digging that debt hole deeper by acquiring more debt. That means cut up all the credits cards. All of them. No exceptions. Now keep the debit cards, as they won't work for you if you don't have the cash in the account they are tied to. But the credit cards have to go.

Step 2 - List all of your debts smallest to largest. Ignore interest rates. They flat out don't matter really, for what you're doing to reach the desired end goal. Do not include your mortgage in this list. However, if you have an "equity loan" commonly referred to as a Home Equity Line of Credit (HELOC) then do include that in your list.

Step 3 - Put into a savings account, a $1000 "emergency fund". What's the definition of an emergency fund? Simple. If not using that $1000 means that you will be eating your next meal out of the dumpster behind the neighborhood McDonalds, and sleeping that night in a cardboard box behind that dumpster, then you have a valid emergency. Anything less is not an emergency.

Step 4 - Stop ALL contributions to any and all retirement accounts. Understand that this is not forever. It's only for the short term so you can use that money to pay off your debt.

Step 5 -Take a look at that list you made in step 2. You start with the smallest debt first. Make the absolute minimum payments on all other debts, then throw every single remaining penny you can scrape together at that smallest debt. Once that debt is paid off, the second smallest debt now becomes the 1st smallest debt.

Now that the first debt is paid off and that payment doesn't exist anymore, you have even more money to throw at your "new" smallest debt, thus paying it off sooner than you may have thought possible.

Now there is one exception for step 5 here. If you owe the IRS back taxes, I don't care where they may fall in your list of smallest to largest. You pay off the IRS *first*, no matter what. You don't need that monkey on your back, as if the IRS comes after you, they will not give up - even after you die they'll go after any assets you have, and they *will* get their money before your heirs get anything.

Step 6 - Build your $1000 emergency fund to 3 to 6 months of living expenses. Just exactly how much you need, depends on your situation. But at a minimum you should have at least 3 months of living expenses in a savings account or other investment that you or your family can get to "quickly" should anything happen to you and you are unable to work.

Step 7 - Reestablish contributions to your retirement account(s). For most, they reach this step within 5 years of starting this process.

Step 8 - If you have kids or believe you will in the future, time to start the college fund.

Step 9 - Use all excess money to pay off the house, if you have a mortgage. Generally when a family/person who owns a house reaches this step, if they have a 30 year mortgage they have on average, 22 years left on that mortgage. Simply doubling your house payment means that on average, you will pay off that mortgage in 7 years, give or take depending on the interest rate. I've known some who paid off their mortgage in less than 3 years.

Cob

Soo... Dave Ramsey's Total Money Makeover? I'm not saying it doesn't work, but give credit where credit is due.

Carl11_2

Cob,

Worked for me, and for several friends of mine I referred as long as 5 years ago while I was on my journey to being debt free. For me, it was well worth 3-5 years of sacrifice for a lifetime of what I refer to as "financial peace". If I were to die today, my wife's standard of living will continue on with the only change being that I'm no longer in it. For me, that's real peace.

Will11_2

I strongly agree with the first challenge it has been a poor habit on my part

MariPAuthor

Hi @Will11_2,

Would love to hear more about your journey. When you mentioned the first challenge in your message, are you referring to @Carl11_2's suggestion to stop digging?

Cutting back on spending can be tough for a number of different reasons. Anything specific that you feel has been tough for you to stick to that habit?

FFPPSSLLC

We cut back bc we HAD to, then we ADAPTED. We were scammed by a “bill consolidation program” (in 2012, with government backing, non-the-less) they took all of our debt & contacts, so for 2 yrs we paid in $10k, thinking they were settling our debt, until the Sheriff came to the door. Our credit scores went from 720 to...I couldn’t even look. Not only did we lose what we paid into it, BUT the scam leaves u unable to afford to do anything about it. We cut up the credit cards, sold our home, paid cash for a foreclosed home that sat for 2 years with the proceeds, set up automatic payment programs with all the accounts in collections, still paying on 1, and did everything we could to scrape by. We never even applied for government assistance, well, bc that was the scam’s end game. The sheriff told us he delivered 5 more notices regarding the same scam that day. When I say, we did everything, I mean sold all our valuables, scrapped metal for groceries, had yard sales & worked hard, 2 jobs each. We’ve worked really hard to rebuild our credit, not having any loans or credit cards actually hurt our number. Our score went down when we paid our vehicle loan off, but I followed Turbo recommendations to build it back up. You asked, how did we cut back & this is our story. Believe me, it’s not easy, but our son has learned the true value of a dollar & every way to save one.

Gloria45

Credit cards

candco02

Incoming is lower than expenses

Dileep

You should plan accordingly try to use this formula Income -Investment= Expenses..

When you get an income you must first invest and then remaining amount you can you it for your expenses.

sjsharksgirl86

On this list,

I am currently in school and therefore have student loans. I can't make any payments as I am in school phase but I try to make interest payments here and there.

si55

Get in touch with your student loan servicer and ask about an income driven payment plan.

vlg1957

How can i get control over my debt. how to make it go away. Where can I put all my payments into one payment...

55555

good

55555

not in debt

7827

I am a college student -- I am also on SSDI -- disability. I am also 63 years old. I will start working from home when I finish college in 2 years at a job that pays me quite well because of my degree -- a much better income than before Disability. And in addition, I will be able to still collect $1,050.00 in Social Security Benefits -- as I will be of retirement age when I graduate. But I will also have student loans to pay back. That's the reason I am in debt. Also, I am an artist Digital Media Artist / Animator / Game Development Major who had to first study 2 years of Graphic Art & Design. A field of study that costs a lot in supplies. I have thousands of dollars worth of Art Supplies and equipment from my classes. I get reimbursed by the government at tax time but only by a fraction of what I actually spent/spend each semester. That is why I'm in debt. In this country, --- being in debt -- it is a necessary part of being a student who wasn't born wealthy.

CW2

School debt is my life long burden. No other debt; only regular living expenses. Been without credit cards for nearly 8 years. I'm 61 and in the education field so have never had high income. As a single parent, I put 2 kids through college and am nearly done paying off the part of that parent debt that I was responsible for. However, my own school debt (also went back late in life) has blown up since in deferment while paying for my kids and now forbearance while I figure out how to make giant payments that are half my take home pay each month. It is a nightmare! I will go to my grave with this debt. I truly question the value of a college education because the cost is high in so many more ways than just the dollars and cents of it. It is constant stress over the loans, which started out small and have grown like monsters on steroids.

ShannonB69

I am working toward getting out of debt and getting rid of these credit cards is my top priority. Trying to keep a consistent side hustle to generate additional income to snowball this debt! I agree with you as it pertains to the student loans, but I will pay that down. I won't give up. Good luck to all on the journey to financial freedom!!!