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The Top 10 Causes of Debt

July 08, 2009 | Alliant Credit Union

People slip and fall - or plunge - into debt for a variety of reasons. Some debt, such as a student loan, is considered a "good debt" investment. Other reasons are problematic and, in today's economy, increasingly more prevalent, such as job loss or being the owner of a failed business. Here's a list of the most chronic causes of debt.

1. Reduced income without reducing expenses. If your income shrinks, be prepared to live within your means and adjust your spending habits to compensate for the loss.

2. Underemployment. Akin to reason No. 1. You may be inclined to think of under employment as a temporary condition, particularly if you are coming off a period of unemployment. But, it's important to modify your lifestyle to match your present income.

3. Lousy money management. Without a monthly spending plan and a keen sense of where your money is going, you may be headed for trouble. Managing your money means spending it wisely and keeping track of bills (and paying them on time).

4. Lack of savings. "Pay yourself first!" How many times have you heard that cliché? Nevertheless, regardless of your circumstances, try to save a bit each time you're paid so you can build up a cushion of savings.

5. Divorce. More than half of all American marriages end in divorce and the economic impact can be devastating.

6. Medical expenses. The cost of healthcare continues to make people financially ill. The tendency has been for government to cut its expenditures on this and insurers to raise their premiums. That makes it easy to rack up debt due to gaps in coverage, lapsed policies and costly treatments.

7. Banking on a windfall. What if that expected job bonus, inheritance or birthday present doesn't come? Better to wait until you have the money in your account than to spend it before you have it.

8. Gambling. Over the long term, only one in a hundred people win money at casinos or on online gambling web sites. If you play, make sure you don't become addicted because the only guaranteed money exchange is from you to "the house." While 46% of Americans buy lottery tickets from time to time, a full 4% of us are problem gamblers, according to industry studies.

9. Poor money communication skills. Honestly discuss your current financial condition with your family. Make sure you're all on the same page in terms of financial goals and strategy. One of the most common reasons couples divorce is that one member racks up huge credit card debts without the other spouse's knowledge.

10. Financial illiteracy. Schools don't teach how money works and grows, how to save and invest, and how to balance a checkbook. To make money work for you, you'll need to understand these fundamentals.

Sources:,,, and

© 2009 Alliant Credit Union. All Rights Reserved.

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