Causes of Debts

Causes of  Debts

Previously we I shared with you the concept of debt management and I concluded by saying that “understanding the concept of debt management is imperative to be debt free”. Having concluded that let us now consider this: what causes debt?

It is no news that the best way to solve a problem is to first identify what causes the

problem. This is the case with debt. To be out of debt you are expected to know the possible causes of debt and its accumulation.  There so many causes or reasons why people are in debts. But for the sake of emphasis I shall share with you some of these causes based on my personal research and and observation and in subsequent times I shall also share with you the possible ways on how you can manage and get out of debts. 

Debts normally result from avoidable and/or unavoidable mistakes made by people . Some of the causes and reasons why people are in debts and why debts are accumulated include failure to save, failure to invest, investing in liabilities instead of assets, borrowing without good plans of repaying, failure to judiciously manage available resources, wrong spending habits, lack of plans for  emergencies and uncertainties, living above means and what have you.

Failure to save:  If you fail to plan then you plan to fail. Since no one plans to be in debt the best thing you should do is cultivate the habit of saving so that if eventually debt knocks on your door your savings can then knock debt off.

Failure to invest: Some people are in debts because the fail to invest. Good investment act as a cushion against the emergence and accumulation of debt.

Investing in liabilities instead of assets: If you are ignorant of what liabilities and assets are then you will be in debt when you invest in liabilities instead of assets. Assets increase your earnings ( income and profit ) since they appreciate but liabilities reduce your earnings ( income and profit ) since they depreciate. 

Borrowing without good plans to repay: It is not wrong to borrow but before you borrow make sure you have good plans to pay back. This is why most financial institutions like banks require collateral as security before giving out loans such that incase the borrowers refuse to pay back they can then confiscate whatever the borrowers used as collateral.

Failure to judiciously manage available resources: This a contributing factor to why people are in debts. Hence the Economists assert that despite the fact that human needs are insatiable and since the resources to meet these needs are limited in supply and so there is a need to judiciously manage the limited but available resources.

Wrong spending habits: This can lead you into debts and even make you to accumulate  more debts if not properly addressed on time. Always balance your savings and spending. Infarct spend on the things that will bring good returns and things that will appreciate. 

Living above means: This another cause and reason why people are in debts. The more you try to live above your means the more debts you accumulate. So be cautious in your living habits. Moderation in everything you do has always been the best.

Lack of plans for emergencies and uncertainties: Some people are in debts because of this. What you do not plan for may plan for you. That is one thing about life. These can be the 4R’s (retrenchment, resignation, recession, retirement), accident, sickness, break down of relationships, marriage separation (divorce), business failures, etc. All these are capable of plunging you into huge debts if you refuse to plan for or against them.

What have you: This is the last of causes of debt. I leave this for you as an assignment.

Food for Thought:  " knowing the cause of a problem is the first step in solving the problem .”

 To me these are some of the causes of debts.What other factors are the causes debts?Leave your comments below