Why do people take on so much debt?

[Judique]

Well, NOBODY needs an Iphone. That's the issue. A $50 Smartphone from Target or Walmart will do everything they need to do for hundreds less. HOWEVER, that doesn't matter because low income folks get cell phones and service at no charge thanks to $1.11 Universal Access fee all cell phone users pay each month per phone to pay for those phone.s

That sounds good but from what I can tell after examining a few options, is that the $1.11 is in California, not necessarily across the country. From Xfinity, here in Maryland, there are two fees, totaling $4.88. These are 'recovery fees' that Xfinity is allowed to pass on.

There is a federal plan for internet that is currently funded through April of this year.

 

[barkley]

I would enjoy seeing stats on how long people who achieve total debt freedom (including paying off mortgages, student loans and other traditionally very long term debt) REMAIN debt free. I personally know a handful of folks who have achieved total debt freedom through a variety of means but i am now realizing that it's the exception vs. the rule that they remain so. i'm not talking taking on debt due to a catestropic life event but more so that they get a case of the 'i wants' and get pulled right into the debt trap all over again-large scale home renovations (visual vs. improves the homes use/function), new cars when their existing are just fine (and they won't experience improved mileage or reduced upkeep), more frequent/costly travel or activities. with some of these if they delayed the purchases and saved they could cash flow but they are unwilling to delay.

is being in debt so ingrained in people that they experience some level of discomfort not being so?

 

[ruadisneyfan2]

I personally know a handful of folks who have achieved total debt freedom through a variety of means but i am now realizing that it's the exception vs. the rule that they remain so.

I think this is the key phrase. Unless it’s done “the hard way” of living below one’s means and applying the leftover funds to pay down the debt, people haven’t actually changed their ways.

I am so used to buying only what we really need, except vacations, that I can’t imagine debt accruing again. We have our occasional splurges but never anything big. Last Saturday, dh and I went out to dinner. That was enough of a splurge for me.
Even when dh got a new Silverado last summer, and we paid a huge down payment to minimize the car loan, I couldn’t stand having a loan so we borrowed from dh’s slush fund and paid it off a month later. Then I restored his slush to its original amount.

If people pay off their debt using an inheritance, they haven’t changed their ways to live below their means.

 

[tvguy]

I would enjoy seeing stats on how long people who achieve total debt freedom (including paying off mortgages, student loans and other traditionally very long term debt) REMAIN debt free. I personally know a handful of folks who have achieved total debt freedom through a variety of means but i am now realizing that it's the exception vs. the rule that they remain so. i'm not talking taking on debt due to a catestropic life event but more so that they get a case of the 'i wants' and get pulled right into the debt trap all over again-large scale home renovations (visual vs. improves the homes use/function), new cars when their existing are just fine (and they won't experience improved mileage or reduced upkeep), more frequent/costly travel or activities. with some of these if they delayed the purchases and saved they could cash flow but they are unwilling to delay.

is being in debt so ingrained in people that they experience some level of discomfort not being so?

No question, debt is ingrained in a lot of people's minds. Just like avoiding debt was ingrained in my mind by my parents. It would we an interesting stat to see. Certainly my view is tainted because looking at country records, over half the people on my street own their homes free and clear. But that may NOT be unusual. The last stat available on homeownership is from 2022 and shows 40% of all homeowners have paid off their mortgages nationally. That state drops to just 18% here in California. In my county, 33% of the home buyers paid cash for their homes. The biggest group of buyers coming from areas with higher home prices, or folks downsizing.
Our longest debt free streak ended in 2018 when we bought a new car. We made it 11 years with no debt. We bought a second new car in 2020 (at zero percent interest) and paid it off this year, so are debt free again. My credit is frozen, and I hope to make it the rest of my life without ever having to go into debt again.

 

[barkley]

No question, debt is ingrained in a lot of people's minds. Just like avoiding debt was ingrained in my mind by my parents. It would we an interesting stat to see. Certainly my view is tainted because looking at country records, over half the people on my street own their homes free and clear. But that may NOT be unusual. The last stat available on homeownership is from 2022 and shows 40% of all homeowners have paid off their mortgages nationally. That state drops to just 18% here in California. In my county, 33% of the home buyers paid cash for their homes. The biggest group of buyers coming from areas with higher home prices, or folks downsizing.
Our longest debt free streak ended in 2018 when we bought a new car. We made it 11 years with no debt. We bought a second new car in 2020 (at zero percent interest) and paid it off this year, so are debt free again. My credit is frozen, and I hope to make it the rest of my life without ever having to go into debt again.

we WERE debt free for quite a few years and planned to remain so but over $45K in unanticipated home repairs in 2024 depleted the emergency fund so despite working to rebuild it over the past several months the unexpected need to replace our car came absent the ability to pay fully in cash for it. we HATE the idea of a car loan BUT the interest rate is lower than the cd's I managed to lock in for 5 years so I'm not willing to break any. instead we have a plan in place to overpay the car loan for the first 4 months of 2025 while we replenish the emergency fund and then focus on paying off the car before the year's end.

I think this is the key phrase. Unless it’s done “the hard way” of living below one’s means and applying the leftover funds to pay down the debt, people haven’t actually changed their ways.

I think some (many?) don't have a clue to what their own means are let alone how to live within them. the mindset i've seen with some, both who have struggled to pay debt off and those who have say inherited/gotten a settlement and paid off debt is a lack of realization of what they can/cannot reasonably afford moving forward. it's like their mindset is that during debt repayment they 'did without' entirely b/c a portion of their means was going to debt repayment and now b/c they don't have the debt they should automatically be able to afford whatever wants/desires that put them into debt in the first place. yes, you've got xxx more dollars per month that you are no longer paying to your debt but that will not offset xxxx per month in expenses let alone the big ticket items that you will be repaying on for decades longer than it took you to get out of debt in the first place.

 

[tvguy]

we WERE debt free for quite a few years and planned to remain so but over $45K in unanticipated home repairs in 2024 depleted the emergency fund so despite working to rebuild it over the past several months the unexpected need to replace our car came absent the ability to pay fully in cash for it. we HATE the idea of a car loan BUT the interest rate is lower than the cd's I managed to lock in for 5 years so I'm not willing to break any. instead we have a plan in place to overpay the car loan for the first 4 months of 2025 while we replenish the emergency fund and then focus on paying off the car before the year's end.




I think some (many?) don't have a clue to what their own means are let alone how to live within them. the mindset i've seen with some, both who have struggled to pay debt off and those who have say inherited/gotten a settlement and paid off debt is a lack of realization of what they can/cannot reasonably afford moving forward. it's like their mindset is that during debt repayment they 'did without' entirely b/c a portion of their means was going to debt repayment and now b/c they don't have the debt they should automatically be able to afford whatever wants/desires that put them into debt in the first place. yes, you've got xxx more dollars per month that you are no longer paying to your debt but that will not offset xxxx per month in expenses let alone the big ticket items that you will be repaying on for decades longer than it took you to get out of debt in the first place.

Yikes. $45k in home repairs? What happened?

 

[barkley]

Yikes. $45k in home repairs? What happened?

biggest expenses were-
whole house generator replaced (and upgraded propane line for larger unit)
HVAC replaced

mid level expense-
new snowplow blade for our side by side

'low' level (but still over $1k each)-
2 separate exterior faucets and piping a few feet into the crawlspace froze and split (thankfully we discovered it just as we were setting up summer watering hoses so no flooding)

garage door springs (and plate and such)-crazy heavy insulated 2 car door so those springs were not cheap.

 

[tvguy]

biggest expenses were-
whole house generator replaced (and upgraded propane line for larger unit)
HVAC replaced

mid level expense-
new snowplow blade for our side by side

'low' level (but still over $1k each)-
2 separate exterior faucets and piping a few feet into the crawlspace froze and split (thankfully we discovered it just as we were setting up summer watering hoses so no flooding)

garage door springs (and plate and such)-crazy heavy insulated 2 car door so those springs were not cheap.

I don't live in snow country but I would consider the generator and HVAC replacement to be anticipated expenses that you had years to set aside money for.

 

[barkley]

I don't live in snow country but I would consider the generator and HVAC replacement to be anticipated expenses that you had years to set aside money for.

yes and that's why we were able to pay for it with our emergency fund (what we call our fund for actual emergencies and those major expenses we can anticipate). thing is (thankfully) multiple major systems deciding to fail within a few months of each other is not the norm and while we figured generator systems had increased in cost over the years since we got our original one we were blown away at how MUCH they've gone up (and that was with already having some of the costly infrastructure in place that did not need replacement). in the course of 33 years of home ownership (3 different homes) we had never replaced an HVAC system so we had no idea how costly they are.

speaking of anticipated expenses-just today we had a service call done on our Thermador stove/oven. thankfully it's still under it's original 2 year warranty but in the course of speaking to the technician about what the cost would have run us absent coverage I realized the quote Thermador recently gave us to extend our warranty for another 5 years costs less than just one relatively minor repair that entails 2 appointments. we will be purchasing that warranty.

 

[tvguy]

yes and that's why we were able to pay for it with our emergency fund (what we call our fund for actual emergencies and those major expenses we can anticipate). thing is (thankfully) multiple major systems deciding to fail within a few months of each other is not the norm and while we figured generator systems had increased in cost over the years since we got our original one we were blown away at how MUCH they've gone up (and that was with already having some of the costly infrastructure in place that did not need replacement). in the course of 33 years of home ownership (3 different homes) we had never replaced an HVAC system so we had no idea how costly they are.

speaking of anticipated expenses-just today we had a service call done on our Thermador stove/oven. thankfully it's still under it's original 2 year warranty but in the course of speaking to the technician about what the cost would have run us absent coverage I realized the quote Thermador recently gave us to extend our warranty for another 5 years costs less than just one relatively minor repair that entails 2 appointments. we will be purchasing that warranty.

Yeah, our emergency fund is for unanticipated expenses. I was able to put a little away each month in an account that was specifically set up to replace the HVAC since it was an anticipated expense. It previously had been our "buy a new car" fund. Our HVAC system lasted 31 years so had plenty of time to save. Nearly $13,000 to replace with all the required duct leak inspections and permits. I pulled the paper work on the 31 year old unit that we also put in, it only cost $3,000 installed! The original, contractor grade HVAC lasted 12 years.
You know, extended warranties I have NEVER had luck with on appliances or cars. Actual, I guess I did have luck, as we have never had a successful claim. Yet and I bought one on my 2018 Ford that expires in 2025, and and on our 2020 Camry. Only time I had a repair was on a used car, needed a heater core, which was specifically EXCLUDED in the warranty. Had a water valve fail on our fridge, but LG covered that under a special program because they had issues with that valve, so our extended warranty was not involved.
But as you likely know, the FTC is investigating extended warranties of all kinds because they rarely pay off. Which makes sense since the warranty companies would go bankrupt if they didn't know that the premium they are charging is more than they ever will likely have to pay out. Not much to my stove, I have replaced a burner, a switch and the main heating element. All snap in and cost less than $25 at the hardware store. Now, the stove/oven/microwave we had before we had to get rid of. It was a 1979 Litton and was ALL one unit. When a control board in the microwave went out, it was not longer available and instead of just spending $200 for a new microwave, the entire stove/oven/microwave unit had to be replaced.

 

[barkley]

Our HVAC system lasted 31 years so had plenty of time to save.

back in the day they built them to last. our first home was 30 years old when we purchased it in 1991. less than a year into ownership the HVAC had an issue but the sellers had provided a 1 year American Home Shield warranty in the sale. the older technician they sent out took a look at and gave a whistle saying he hadn't seen 'one of these' still in operation for several years. to their credit they ended up getting the part parts needed custom fabricated and it was operating fine when we sold in '98. the one we just replaced was going on 19 years so it had a good lifespan.

You know, extended warranties I have NEVER had luck with on appliances or cars

I would never do one a car-i don't even like dealing with dealerships during the initial warranty period.

But as you likely know, the FTC is investigating extended warranties of all kinds because they rarely pay off. Which makes sense since the warranty companies would go bankrupt if they didn't know that the premium they are charging is more than they ever will likely have to pay out.

i'm not a fan of the warranties that stores try to push but if an individual well respected manufacturer offers one and the process to use it is identical to that of when it's under the original and i've had a good experience with them i'm more apt to consider weighing the cost. I've also noticed that with some repair companies you get a much quicker response/appointment if they are one of the manufacturer's authorized and the manufacturer is setting up the appointment vs. a blind phone call as a consumer. they know the financial benefit of being the authorized provider in a region and having the warranty repairs contracted with them.

 

[tvguy]

back in the day they built them to last. our first home was 30 years old when we purchased it in 1991. less than a year into ownership the HVAC had an issue but the sellers had provided a 1 year American Home Shield warranty in the sale. the older technician they sent out took a look at and gave a whistle saying he hadn't seen 'one of these' still in operation for several years. to their credit they ended up getting the part parts needed custom fabricated and it was operating fine when we sold in '98. the one we just replaced was going on 19 years so it had a good lifespan.

When I sold my parents home, the original, 53 year old Lennox HVAC system was still there. I was afraid a buyer would require a new system be installed, but I sold to investors who didn't even want an inspection. They completely remodeled the house and put it back on the market 4 months later. I toured the house, and they didn't touch that HVAC. I do know a few years before she passed my mom had one of those free energy audits done by a contractor approved by her utility provider. Guy made a big list of energy saving things she "needed". Then he downloaded her energy bills going back 3 years and his software calculated her energy savings, and that it would take 150 YEARS for to save enough energy to pay for the upgrades. As she was in her 80s at the time, she told the guy she didn't think she would live long enough to justify the expense. Guy did ask her if she ever ran her ac or heat because her bills were very low.

 

[Sheryl2059]

Check credit card options also. They may include an extended warranty for things you buy with it. Of course they have their own restrictions or upper limit and it would only come into play after you had it repaired and paid. They would reimburse you to one degree or another. And as always depends on the card. I think I did that once for some electronic item. But maybe they dont do such things anymore.

As for the question, I suppose it all boils down to two basic answers. One, people 'want' something. Of course we all want things. Unfortunately, that 'want' often gets transformed into 'need'. Like you 'need' a full home theater or you 'need' to upgrade your smart phone every year. Two, there is actual 'need' such as home repairs or a car to get to work and earn a living. Borrowing might be the only option. Hopefully from a source that isnt like a loan shark. Such as credit cards that are basically 'legal' loan sharks some worse than others.

Oh... and of course there was the big housing and bank crash way back when. Too many people got adjustable rate loans they couldnt pay for. And the banks were happy to push such loans while racking up their own debt. Then..... bam. How that all happened is a huge story in itself. There was a great movie about that very day when it all came tumbling down.

Edit: The movie was Margin Call

 

[barkley]

Check credit card options also. They may include an extended warranty for things you buy with it. Of course they have their own restrictions or upper limit and it would only come into play after you had it repaired and paid. They would reimburse you to one degree or another. And as always depends on the card. I think I did that once for some electronic item. But maybe they dont do such things anymore.

it seems like many of the no fee credit cards have dropped extended warranty coverage in recent years. it used to come standard with our Amex and a couple of others but they all discontinued it or severely cut it back. the difficulty with these frequently comes with how they operate-you have to get a diagnosis and then submit it to see if something is covered so you can end up paying for that diagnosis, learning the issue is not covered and being out of pocket for both a diagnosis PLUS the separate repair (for larger items you don't transport yourself). Costco used to have a great built in added warranty for certain electronics if you paid with your Costco credit card but I believe they cut back on that b/c now they market extended warranties through Allstate that they sell.

but yeah, always worthwhile to see if you've got that kind of extra coverage as is checking with the original manufacturer b/c it's surprising on some items how long they are covered. we were very surprised at one point when we had an issue with a garbage disposal to find out it had a 10 year

 

[DCLMP]

Most people go into debt because they don't make enough money to pay for life expenses. It's easy to say you should put aside money for 40k home repairs, but some people simply don't have anything left over after paying their bills to do so. It 's becoming increasingly more difficult with inflation.

For the high earners it's been years of low interest rates and easy money. Why pull money out of your savings when you can borrow at 0%. We are a debt based economy. People need to borrow and spend to keep things going.

 

[tvguy]

Most people go into debt because they don't make enough money to pay for life expenses.

Wish we had an accurate way to test that statement. I think many credit counselors might add to the end of that statement "that they choose to take on". Far too many are in debt because they elected to buy things they did not need.
I certainly have compassion for those for example with unexpected Medical Debt. I think our country would have been smarter to forgive medical debt than student loan debt.

 

[DCLMP]

Wish we had an accurate way to test that statement. I think many credit counselors might add to the end of that statement "that they choose to take on". Far too many are in debt because they elected to buy things they did not need.
I certainly have compassion for those for example with unexpected Medical Debt. I think our country would have been smarter to forgive medical debt than student loan

I've never been poor so I'm not going to judge. I can look at the average income and what things cost to know that life is not easy for a lot of people. It's not easy if you are middle class. You also can't look at your life and try to project it onto others. Everyone's life experiences are different.

That being said. We are a debt based economy. If people stop borrowing and spending we will be in a depression. There's no way around that.

 

[tvguy]

I've never been poor so I'm not going to judge. I can look at the average income and what things cost to know that life is not easy for a lot of people. It's not easy if you are middle class. You also can't look at your life and try to project it onto others. Everyone's life experiences are different.

That being said. We are a debt based economy. If people stop borrowing and spending we will be in a depression. There's no way around that.

One of the biggest things I have learned on the DIS is how much money some people consider to be a middle class income in most parts of the country. So what IS middle class income? U.S. Census bureau using 2023 income figures says between $54,009 and $161,220 for a household. Some here have said an individual income of up to $150,000 is middle class. So we can't even agree on what middle class is. I would say an individual income of $150,000 is upper class.
But you are correct, everyone's experiences are different. Some people think it is normal to spend $400 a month on clothing. I think the most I ever spent for clothing when I was working was $400 for a YEAR, and that included a new suit.

 

[mjkacmom]

One of the biggest things I have learned on the DIS is how much money some people consider to be a middle class income in most parts of the country. So what IS middle class income? U.S. Census bureau using 2023 income figures says between $54,009 and $161,220 for a household. Some here have said an individual income of up to $150,000 is middle class. So we can't even agree on what middle class is. I would say an individual income of $150,000 is upper class.
But you are correct, everyone's experiences are different. Some people think it is normal to spend $400 a month on clothing. I think the most I ever spent for clothing when I was working was $400 for a YEAR, and that included a new suit.

Because the COL varies greatly. https://www.northjersey.com/story/news/2024/12/13/nj-middle-class-breakdown/76942443007/

 

[tvguy]

Because the COL varies greatly. https://www.northjersey.com/story/news/2024/12/13/nj-middle-class-breakdown/76942443007/

Exactly. Crazy income spread for middle class in the same area. I'm sorry, but how can an income difference of over $130,000 put both incomes still in the middle class in New Jersey?