Why do people take on so much debt?

[WDWEPCOT]

I will say this much - sometimes these people that are working their butts off and struggling so hard they deserve a vacation even if it’s a little tiny one can you imagine going your whole life and never taking a vacation? I know my parents never did we did not have one single vacation never not once not a week away not a week end trip nothing my father worked he worked two jobs because he was drowning in the mountain of medical bills Spent his life working seven days a week
Budget are wonderful things they look great on paper funny thing of it is when you apply them to real life they don’t always work because real life has natural disasters / cars breakdown / kids get sick which means you miss work but you still have to pay for daycare whether they’re there or not but you’re not getting paid for work - so budget look great but then real life happens
What cost-of-living these days young people saddle with heavy student loans can’t afford to buy houses they are being squeezed out they will not have what their parents had Things are just not what they used to be Prices are rising higher than wages astronomically Sadly if things don’t change we’re going to see a whole lot more credit card debt it’s going to become the option for a large group of people because they’re going to have no other option
I’m not saying that people aren’t spending to keep up with the Joneses but I think a large group of them that’s just not the case I could be wrong but a lot of people that I know that’s not what they’re doing - they aren’t buying new cars every year new phones every year they’re not taking vacations every year they are just barely getting by and all it’s gonna take is one small disaster and they are literally going to be on the streets bad planning on their part? No These are people with four year degrees These are single women with children these are people who have had medical issues We can’t lump everybody in together
Not everyone receives help from their parents or relative
One example and then I’ll be done
You have a job you saved up to take a vacation you take your vacation and you put it on your credit card because you want to earn the points you come back from vacation and before the credit card bill comes in that you plan on paying off you lose your job you say this doesn’t happen I’m gonna tell you I know people that have this happen I know where the couple both work for the same company and both of them lost their jobs are you gonna pay the credit card bill off are you going to use that money to pay your living expenses because you both just lost your job? Things happen now you have credit card debt that you weren’t expecting to have and your unemployed you may have to pay for cobra anybody paid for that lately? It’s not cheap go without cobra and pray that you don’t have a medical emergency because that is astronomically expensive or you can go back and pay for the cobra to get the medical emergency covered but until you get a job and get insurance you have a lot of bills and no income coming in I was trying to say things happen and sometimes you end up incurring debt and then once you get it it’s hard to get rid of it so not everybody who has credit card debt out there buying cars for no good reason and taking lavish vacations and have you priced a car lately?? Sometimes it’s better to buy a new car then to try to get an old one repaired Especially if you’re having to get it repaired constantly just to try to keep it running - some people live places where you have to have a car we don’t have a public transportation in the place where we do it’s not safe to get on it

 

[DCLMP]

And don’t forget the debt craze that fueled our last holiday season: Buy Now Pay Later

There was an interesting study by the Fed recently on use of this product. While it certainly surged over the holidays it is also being used to buy necessities like groceries as a sort gap loan by those in the worst financial situations. Link

Personal debt is at an all time high and so is government debt. I don't think any of is going to end well.

I think every card I have has some kind of pay it plan and I get 0% credit card offers in the mail every day. It hasn't stopped even with the Fed raising rates. There are still plenty of opportunities out there to get in over your head.

 

[Starport Seven-Five]

IMO the problem is most start in debt, get comfortable with it, and then inflate lifestyle to match increases in income. Breaking that cycle takes a conscious effort and many just don't realize the harm paying CC interest is doing on their life.

I also see people that have issues the opposite direction. For example, I have an uncle that has over 2 million in investments, still works in his early 70s, and refuses to spend money on anything. He will likely die without enjoying the fruits of his labor.

Balance is critical and while the US has a bigger debt problem, both extremes make me sad.

 

[barkley]

i'll just speak to the debt from heloc's that folks i know/have known use strictly for wants.

these lending instruments market the mindset that a person is NOT taking on debt-they are just borrowing from themselves/taking a withdrawl from their own EXISTING assetts (the equity in their home). i am seeing now what i saw back in the early 2000's when housing prices were high and people who had purchased at a lower price point saw their home's resale value as much higher than what they paid. many used helocs for items they traditionaly would have put off buying or just made do with what they had (lots of my prior neighbors re-furnished entire homes and tossed perfectly good furnishings, put in pools, upgraded to much nicer vehicles, went on much more upscale vacations). where i live now i see it with doing very expensive improvements to properties that are purely wants (no need to do it), high end expensive equipment (that can and traditionaly have been rented by landowners) and acquiring things that some just can't imagine not having as a part of living 'in the country'.

the thing is-a house is only worth as much as someone is willing to pay for it. someone taking out a heloc is NOT borrowing or taking a withdrawl from themself-they are taking it from some set of numbers that only exist on paper today and are prone to change with housing and economic trends.

what was previously viewed as a product for those with bad credit and viewed as a last resort-the 'second mortgage' was tweaked in the 80's and rebranded as the heloc. that rebranding worked and people began going into debt for things they never would have considered doing so for previously.

 

[tinkerbellandpeterpan]

We don't have "fun" debt. We had several pets with serious vet bills over the past few years. Our car is paid off but it has over 100,000 miles on it and God help us when we have to buy a new one. My student loan debt is crushing. Yes, I know that I took the loans. But I'm paying what some people pay to rent an apartment per month and the principal never goes down. It's frustrating and upsetting. I literally cry over the debt but it is what it is right now. I can't change it. All we can do is pay down what we can. We aren't horrible people. We aren't entitled. This is just the situation we find ourselves in since I lost my job during the pandemic. And yes, I am working again but with a much smaller salary than before.

And we know we will never be able to buy a house. Despite the fact that we have always paid our rent and other payments on time. We will just never have a down payment.

 

[DCLMP]

We don't have "fun" debt. We had several pets with serious vet bills over the past few years. Our car is paid off but it has over 100,000 miles on it and God help us when we have to buy a new one. My student loan debt is crushing. Yes, I know that I took the loans. But I'm paying what some people pay to rent an apartment per month and the principal never goes down. It's frustrating and upsetting. I literally cry over the debt but it is what it is right now. I can't change it. All we can do is pay down what we can. We aren't horrible people. We aren't entitled. This is just the situation we find ourselves in since I lost my job during the pandemic. And yes, I am working again but with a much smaller salary than before.

And we know we will never be able to buy a house. Despite the fact that we have always paid our rent and other payments on time. We will just never have a down payment.

I hope it gets easier. I think it's really rough for a lot of young people. A studio apartment in a decent area in our city start at about 1300. I think that's a lot. I worry about my kids future. I certainly had it a lot easier.

 

[tinkerbellandpeterpan]

I hope it gets easier. I think it's really rough for a lot of young people. A studio apartment in a decent area in our city start at about 1300. I think that's a lot. I worry about my kids future. I certainly had it a lot easier.

Thank you for your kind words. Unfortunately we aren't that young. Thankfully I started saving for retirement early so I have that for us for later. It's tough. We are doing our best. The judgment is tough.

 

[Bellex917]

I think this post assumes a level of financial literacy that many are lacking. I was raised by lower middle class parents who taught me nothing about saving or investing. They themselves never saved. I went to college and got my BA and came out with loans, which was just seen as "normal." I married and we went into debt which, again, felt "normal" at the time.

We know better now. We are almost completely debt free. We will be debt free in a few more months. We did finance a DVC loan but intentionally and with a plan- we paid off our first 110 point contract in 6 months and are on track to pay off our 2nd 100 point contract in a similar time frame. In total the interest accrued is minimal, but that's bc we are throwing EVERY PENNY at it, and cutting from our lifestyle to make it happen. It was a thought out plan.

With that said, most people don't "think out a plan" to pay off- they think in terms of payments. Can I afford THIS PAYMENT, not "this debt." It's not good and it's unfortunately often due to a lack of knowledge and understanding.

 

[DCLMP]

Thank you for your kind words. Unfortunately we aren't that young. Thankfully I started saving for retirement early so I have that for us for later. It's tough. We are doing our best. The judgment is tough.

I think there's always this perception that people that have debt are reckless. I wouldn't compare yourself to others or let the judgement bother you. Everyone's life situation is different and life throws some people more curveballs then others. There are people that make a lot of money and nothing ever sets them back...they really don't get the struggles of the middle class.

 

[barkley]

With that said, most people don't "think out a plan" to pay off- they think in terms of payments. Can I afford THIS PAYMENT, not "this debt." It's not good and it's unfortunately often due to a lack of knowledge and understanding.

a agree wholeheartedly with this. debt looks much different when viewing the installments vs. the initial cost let alone the cost when all the interest and fees over time accrues.

the one exception to this seems to be with home purchases-it tends to always focus FIRST on the the affordability of the entire purchase, then people look at if they can afford the monthly payments (but in most cases it's a foregone conclusion b/c a lender has already said that a buyer can 'afford' it). we took a very different point of view on monthly house payments with our current home. we knew what we could afford but despite dave ramsey and all the financial experts saying that if able it's stupid to go with a 30 year mortgage we looked at the difference in payments on a 15 vs a 30 (the rate difference then was as it is now-less than a 1% difference). it was substantial enough that we knew if something went south with our incomes it would be easier with that lower 30 year rate. we locked that 30 year as a fixed with no prepayment penalty but began paying day 1 at the 15 year monthly payment rate. if we had just kept doing that we would have paid in full in 15 years/7 months. as it happened we thankfully did not have any financial reverses and ended up throwing extra at it so we paid off in less than 10 but there was peace of mind in having a payment that was much LESS than we knew we could reasonably afford.

 

[FreeTime]

We don't have "fun" debt. We had several pets with serious vet bills over the past few years. Our car is paid off but it has over 100,000 miles on it and God help us when we have to buy a new one. My student loan debt is crushing. Yes, I know that I took the loans. But I'm paying what some people pay to rent an apartment per month and the principal never goes down. It's frustrating and upsetting. I literally cry over the debt but it is what it is right now. I can't change it. All we can do is pay down what we can. We aren't horrible people. We aren't entitled. This is just the situation we find ourselves in since I lost my job during the pandemic. And yes, I am working again but with a much smaller salary than before.

And we know we will never be able to buy a house. Despite the fact that we have always paid our rent and other payments on time. We will just never have a down payment.

If you haven’t already, look into a down payment assistance program. In our area the income requirement to get one is $150,000 or less. There is an area I work in on the other side of the country where the maximum income is $550,000. So lots of people are eligible. Google your state housing finance agency.

 

[blabbermouth]

Thanks for posting. I had considered posting something similar after the other thread.

When we were starting out our married lives we had quite a bit of debt. It was quite suffocating! So glad to be out of it. I do consider ourselves to be fortunate but at the same time we are frugal in our day to day lives and save, save, save.

We gradually added onto DVC. Our first home was $30,000 (this was in the 00s and these houses are $60,000 now - well under the affordable housing stat in our area), we did as you did, traded up with a goal to pay off early. We paid off our trade up home last year in our 40s. We aren’t moving as we don’t want the housing debt. I do think our desire to not have a mortgage is contributing to younger people not being able to find housing that they can afford. But, to find a home as nice as ours and smaller would cost us $800k. Our current one would sell for $400k. Only reason to move would be a want.

We pay cash for a new car every 7-10 years and drive it until it’s wheels fall off.

Concerning college, I slowly got my undergrad and grad by working for employers that would pay for it. Our children have graduated college debt free through our help and by working during college. It is possible to go to college debt free by taking a bit longer.

I weigh the budget carefully each time I have a want instead of going into debt. I want a $x,xxx purse but I want to go on a special trip more. If a medical bill were to come up that I couldn’t cover, I would pay that and not go on vacation.

I think a lot of the debt continues to be about the wants not the needs.

$30k for a house I don't think you could have bought a house for $30k here since the 1950s maybe.

 

[Dakota731]

An interesting article I read in December stated that 30% of the U.S. is still in debt from last Christmas. And 70% say they'll overspend this year again. All for a bunch of junk that we usually don’t need and will be forgotten about in a few weeks time.
I really enjoy listening to Dave Ramsay’s podcasts where you can hear how people with all different incomes and life situations tackle their debts. And it always involves work - 2nd jobs, no eating out, keeping a budget, paying with cash etc. But it’s worth it to achieve financial peace, in my opinion.
One of the best things we can teach our kids is basic economic/financial principles. My parents never paid my way through college and didn’t give us a cent towards a house. But they did teach us to save and spend wisely. We were debt free by age 35 including our mortgage never making more than a lower middle class income. And we certainly had set backs and medical debts along the way. So for young people to think they need parents to give them financial advantages to be able to succeed, it’s just not true. At the time, I was resentful of having to pay for everything myself, but now I look back, I see that they gave me something much more important than money.

 

[DisneyHardin]

Some debt I take on because it's a better "deal" than using savings. For example, we bought a new fancy TV about a year ago - it was around $2500. Best Buy offers 0% interest on their credit card, so we put the TV on there and divided out exactly what we needed to pay each month to have it paid off before the promotional period ended. We had $2500 in savings we could have used, but why use money that is making money?

 

[kanerf]

Why is the U.S. 30 Trillion in debt?

 

[Disneytam]

$30k for a house I don't think you could have bought a house for $30k here since the 1950s maybe.

In 1985 I payed $35,000 for my first house, a 2 bedroom that sits on 10 acres. I was 19 at the time and still own the property.

 

[DCLMP]

$30k for a house I don't think you could have bought a house for $30k here since the 1950s maybe.

My parents bought their first house in Southern California in 1967 for 32k.

 

[DCLMP]

Why is the U.S. 30 Trillion in debt?

I think you should be asking congress that question.

 

[FreeTime]

I just looked up the cheapest properties on the market in my county. We live in a county that is part of a large MSA. These properties are in a small town instead of within the main city limits. Cost of living in our area is 10% below the national average.

Single wide mobile home - $34,000
Single family brick and mortar completely gutted fixer upper - $37,000
Single family move in ready - $54,000
Less than 1 mile away from these is the highest listed home $3.8 million

 

[barkley]

In 1985 I payed $35,000 for my first house, a 2 bedroom that sits on 10 acres. I was 19 at the time and still own the property.

1991 (built in 1961) on 1/7th of an acre lot and we were thrilled to get it for a 'great deal' b/c a sale had fallen through within days of closing but right after the sellers had a brand new roof installed-

we paid $130,000 (and our interest rate was in the double digits ). we were the 'cheap-o's' among our friend group whose starter home was MUCH less costly than what they were buying into.