Bad Decisions That Typically Lead To Debt

A common thread running through many households in terms of debt is a lack of planning. Whether it is caused by ignorance or indulgence, it is crucial to recognize it and change it. The negative consequences caused by this lack of planning are many, but in particular, the three most common expenses are put at risk and lead to debt.

Home Purchases
Although it's the American Dream to own your own home, many couples spend too much of their income on the mortgage payment and eventually, it catches up with them. Years ago, it was much more difficult to qualify for a loan but because of deregulations in the lending industry, it is now easier. Sounds good, you may think, but you can become "house poor" very quickly and not have enough money to cover other expenses. Many people choose this anyway, thinking that it's wise to purchase the most expensive home they can get, regardless of how far they have to stretch the budget. They make the decision based on the assumption that their income will increase in the future. They didn't plan for a slump in the economy, little or no raise, or a layoff, unfortunately.

New Car Purchases
This is another area where people get in over their head, especially for those who have a tendency to overspend. Unfortunately, many people put their material desires before their pocket books and purchase cars that are beyond their means. They don't consider that the cost for insurance and auto repairs increase with the cost of the car. It's so easy to only consider the monthly payment and ignore the total cost of the car. Even if you decide to sell the new car to relieve debt, you'll be surprised to find out that you probably owe more than what you could get for it, so the burden continues. Saving for a good used car is a better decision.

Scheduled Expenses
Many people fail to plan for inevitable expenses such as car maintenance, insurance, home repairs, and medical expenses. Or, when they try to fit these items into their budget, they don't fit. Ignoring them until they're due causes you to pull out the plastic, adding to debt.