The Real Reasons Why You Are in Debt

The Real Reasons Why You Are in Debt

The following is a guest post by blogger, economist and fan of this site Kostas Chiotis.

Debt can feel like a never-ending, downward spiral. The fact that you’re in debt makes it difficult to avoid.

However, I believe no matter who you are or what situation you’re in, it is possible to get out of debt.

At the end of the day it’s all about choices, where and how you spend your hard-earned money.


To help you start the process of some serious self-reflection, here are a few of the most common reasons people are “trapped” in debt. They are also a couple of the same reasons I think most people overlook to get out of it.

Reason #1 – You Don’t Worry About “Good Debt”

Sure certain kinds of debt may help your credit score.  (Check out Mark’s post here about credit score 101 – a great reminder what it is and how to manage it.)  Just because your credit score looks good doesn’t mean you want to hang onto it.   “Good debt” only looks good to creditors.  The only “good debt” for you is no debt at all.

That means you should avoid taking on any debt for any prolonged period of time.  No matter whether people tell you debt is good or bad, you want to get out of it as quickly as possible. Interest payments make other people rich.  The slower you pay back your debt obligations, the poorer you generally become.

Reason #2 – You Have a New Car Payment

A new car is not an investment. If you can’t afford to pay for your car up front, it cash, you can’t afford a car.  A new car loses tremendous value (sometimes thousands of dollars) the second its front tires role off the lot.  Worse still, its value will continue to drop with each mile you take.  Cars are generally a fast, depreciating asset.  Don’t borrow piles of money to buy a depreciating asset – that’s a double whammy. 

The alternatives?

  1. If you’re absolutely in love with a new car – then go for it – but it should be purchased in cash.
  2. If you can’t do #1 then you’ll need to buy a used car with your cash.  Sorry, that’s the way it works!

By doing #1 or #2 you’ll free up hundreds of dollars per month in your budget.  You can use that money to start ramping up your payments on other forms of debt (i.e., like your mortgage) or better still save money for your financial future.

Reason #3 – You Are Trapped by a Predatory Lender

This is a serious problem. Payday loans, debt settlement scams, and even credit cards with awful interest rates are all examples of predatory lending tactics.  Those places want to keep you in debt – and you help them by never paying off your obligations in full.  I appreciate times can get very tough financially.  If and when they do and you have little cash reserves on hand, here are some money suggestions for you:

  1. Map out your situation. List all of your debt and their interest rates. List all of your bills. Write down every single thing you spend money on in a month. What’s the grand total? Is that more than your monthly income? If so time for step two.
  2. Cut spending to the bare minimum. Warning: you will need to be ruthless for many weeks or many months. The upside is you can resume a more normal lifestyle once you’re payday loan and credit card free.
  3. Find extra income sources. Consider picking up some side jobs.  I understand there is work involved here but then again with debt is no free lunch.
  4. Focus on the worst debt first. Make minimum payments to all other debts.  Once one debt obligation is done you’ll a) have one less debt fear to worry about and b) you should be motivated to focus on other forms of debt.  Keep doing this until all debt is gone.


Living with debt can be very stressful.  It can feel like an impossible task to break the cycle and slay the beast.  You already know the key is to spend less than you earn but that’s not always easy.   There might be more reasons you’re in debt but thinking about “good debt”, having a fat car payment or getting sucked into bad lending practices are at the top of my list.  Avoid them all.

To kill your debt I suggest you redefine what is essential.  It will force you to make some serious choices.  Again, you can always return to your ideal standard of living when your debt is under control.  I have no doubt you’ll enjoy that standard of living much more when you don’t owe other people money.

Kostas Chiotis is a blogger, economist and fan of My Own Advisor.  

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

9 Responses to "The Real Reasons Why You Are in Debt"

  1. Good points. Not sure if I agree with number 2, “A new car is not an investment. If you can’t afford to pay for your car up front, it cash, you can’t afford a car.” Same was said about a house in the past. Instead of paying cash for a new/used vehicle, you can invest the large sum and get a 6-7% compounding return for 5 years, where most interest rates for car loans are 2-4% annually.

    1. We’re hoping to save up ~$15K for our car in the coming year, for a newer one. We’ll see – that’s saving $1,000 per month which is aggressive but can be done I hope.

  2. Debt can and often is an addiction, or one has just accepted his situation and manages to live with it. Too often its those who can afford it the least who fall the deepest in debt. Not to be totally negative, but often you will find those same people at the casino or buying lotto tickets. Even if they won a pile, its unlikely much would go towards reducing debt.

    As with most fixes to serious problems, there is no painless or quick fix. Bite the bullet and do without, consolidate the bad debt, hopefully to reduce payments or pay more to reduce debt and work additional jobs.

  3. Kostas, you hit the nail squarely on the head!

    Good luck to all those out there who can see the light and are working on being debt free.


Post Comment