3 Reasons People Stay In Debt
- UpdatedSep 20, 2024
- People stay in debt when they sacrifice their future for the present.
- Overspending, taking on too much debt and refusing to save causes hardship in the future.
- You can protect your future by paying off debt, learning to budget and establishing a saving habit.
Table of Contents
People go into debt for various reasons, some of which are largely beyond their control. But while some people are able to pay off their debts and avoid it going forward, others can’t seem to escape it, despite very real efforts. The following are 3 common reasons people stay in debt and what they can do to help break the debt cycle.
1. The need to have it all — right now
Who wouldn’t want to drive a fancy car or live in their dream home? Most of us do, but the question is whether or not we have the resources to attain them. While there’s nothing wrong with having wants and goals, we have to be realistic about what we can currently afford.
One of the reasons people stay in debt is because they feel the need to have everything right away. It may be for appearances’ sake, to “keep up with the Joneses,” or a whole host of other reasons. This very common problem–dubbed by psychologists as “present bias“– simply means that many of us have a tendency to prioritize our current wants and needs over our future ones.
But, going into debt in the name of instant gratification can be very damaging in the long-run, both financially and emotionally. The good news is that to break this habit, you may not need to deprive yourself of everything. But you will need to adjust your lifestyle to one your finances can comfortably support.
2. Spending instead of saving
There’s no question that life can be unpredictable. So, the more we prepare today, the better off we’ll be in the future, especially when life throws us those curve balls. There are countless stories of people racking up debt because they fell on hard times. In fact, the top 3 sudden life events that cause people to file for bankruptcy are:
Medical expenses
Job loss
Divorce or separation
Having an emergency fund and saving for retirement are crucial for dealing with the expenses associated with these types of events and avoiding debt. No matter how tempting it can be to spend now, your future self will thank you for delaying instant gratification in support of your long-term financial security.
3. Refusing to budget
The first step to improving your finances is to be honest about where you currently stand. Some people in debt feel uncomfortable talking about money and would rather take the “ignorance is bliss” approach. But this is one of the main reasons people stay in debt. Knowing the state of your finances and setting realistic goals is crucial to getting and staying out of debt. You have to know exactly how much you owe, where your money is going, and find areas where you can improve.
Once you know what you can realistically spend each month, sort your expenses into two categories: needs and wants. Next, try redirecting some of the money that you’ve been spending on wants towards debt repayment. When you have a manageable system in place and get into the habit of following a budget, paying down debt will get easier.
In the end, if you really want to stay out of debt, you need to be willing to make changes and sacrifices. Otherwise, the cycle will repeat itself. Change may not be easy, but living with the consequences of debt is much more difficult.
Get help breaking the debt cycle
If you’re ready to join the ranks of people who don’t stay in debt, there is help available. Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify right now.
Debt relief by the numbers
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during August 2024. This data reveals the diversity of individuals seeking help and provides insights into some of their key characteristics.
Debt relief seekers: A quick look at credit cards and FICO scores
Credit card usage varies significantly across different age groups, reflecting diverse financial needs and habits.
In August 2024, the average FICO score for people seeking debt relief programs was 582.
Here's a snapshot by age group among debt relief seekers:
| Age group | Average FICO 9 credit score | Average Credit Utilization |
|---|---|---|
| 18-25 | 565 | 93% |
| 26-35 | 575 | 91% |
| 35-50 | 578 | 89% |
| 51-65 | 583 | 87% |
| Over 65 | 597 | 82% |
| All | 582 | 88% |
Use this data to evaluate your own credit habits, set financial goals, and ensure a balanced approach to managing credit throughout your life.
Collection accounts balances – average debt by selected states.
Collection debt is one example of consumers struggling to pay their bills. According to 2023, data from the Urban Institute, 26% of people had a debt in collection.
In August 2024, 28% of debt relief seekers had a collection balance. The average amount of open collection account debt was $3,092.
Here is a quick look at the top five states by average collection debt balance.
| State | % with collection balance | Avg. collection balance |
|---|---|---|
| Nevada | 29 | $5,116 |
| Utah | 23 | $4,223 |
| Montana | 31 | $4,194 |
| Maine | 30 | $4,141 |
| Deleware | 28 | $3,911 |
The statistics are based on all debt relief seekers with a collection account balance over $0.
If you’re facing similar challenges, remember you’re not alone. Seeking help is a good first step to managing your debt.
Regain Financial Freedom
Seeking debt relief can be the first step toward financial freedom. Are you struggling with debt? Explore options for debt relief to regain control of your finances. It doesn't matter how old you are or what your FICO score or credit utilization is. Take the first step towards a brighter financial future today.
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