Mistakes That Keep People in Debt

why people stay in debtI have certainly made my share of financial mistakes from running up credit card debt to spending student loan money on an iguana, but I think after all those mistakes, I’ve finally learned how to stay out of debt. However, I see people every day who are still struggling with the same money problems we used to. There are some key mistakes that can sneak upon anyone trying to beat the cycle of debt.

Taking Out Loans After Paying Off Large Amounts of Debt

We knew another family that were going through some of the issues we were during our massive credit card debt payoff. We used to all hang out and play musical credit cards, charging whatever and whenever we liked. Jim and I had our wake up call after seeing family really struggle after losing a house to foreclosure. Our friends lost a job during the great recession. The husband worked in a sales job while the wife stayed home with the kids. Since they had no emergency fund, things got pretty tight. Eventually, they made some tough decisions, which included selling a really nice house that was keeping them house poor. They moved into a small rental. The wife took a job. The husband found a more stable job that he didn’t like as much, but they were able to pay off debt and get back on track financially.  Until they bought a new car. Never mind that they had two paid off vehicles that ran just fine. They wanted a new car, and convinced themselves that taking out a car loan was a good idea. Now they are back into the monthly payment game.

I’m not picking on my friends. Jim and I paid off our credit cards a couple of times over the years only to run them back up again. Until you get to the point of knowing that monthly payments for consumer debt do not have to be your life, you are at a huge risk for falling back into debt.

Not Having an Emergency Fund

Even with the new car purchase, our friends seemed to be doing well. Last year, they were able to buy a house  better suited to their income. Home ownership is the American dream after all,  but then the husband quit his steady job to go back into sales. The sad thing is that this family still does not have enough in savings to make it through one month of expenses. The wife is still working, but her salary is a fraction of what the husband makes.

I think life is too short to work in a job that you hate, however, you can’t just jump ship when the mood hits. If he wants to make a career in sales, I think that’s a great plan, but he should have remembered what happened the last time the economy went south. Now there is a new house payment, a new car payment, and a paycheck that is not dependable. I can only hope things go better on the job front this time. Even if it takes a long time to save up, I think you need at least six months of living expenses  in the bank before you leave a steady job for the unknown. Being able to borrow from your retirement plan does not count. That’s certainly not the YOLO philosophy, but not being able to pay your bills is not the kind of exciting I’m looking for.

Going Back To School Without Knowing If It Will Help Job Prospects

I had a patient not too long ago who lost a job in social work. She decided to go back to school to get a master’s thinking she’d have a better chance at a higher paying job. She got the degree online, which was convenient, but very expensive. Now she has a master’s in social work, no job, and a sack of student loans. It’s amazing the things people tell you during an eye appointment!

Furthering your education can be  great way to move up the career ladder, but you need to know that it will be a help in your profession before you take out student loans. In this lady’s case, even with a master’s in social work, the top salary does not warrant what she spent on an expensive degree. Taking classes at a state school might have meant driving and time away from home, but it would have saved thousands of dollars. It also hurts that we live in a small town with limited job openings. If you know you don’t want to move for work, then find something that you can do in your area.

These are three of the mistakes I’ve seen personally that keep people in debt. I’m certainly not perfect, but I’ve learned that having savings and not allowing  ourselves to buy something  we can’t pay for right away is what is going to keep us out of debt forever. It only took a decade to realize this, so hopefully you’ll take my advice to avoid your own mistakes.

What debt mistakes do you see people making every day? Would you stay in a job you hated to pay the bills?


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  1. I think that’s why even though I don’t like my main source of income right now, I’m not going to make the mistake of leaving it (or in this case dropping the client) just because…I’m using it as fuel to find something better in the meantime WHILE I still have income coming in. I did make the huge mistake of funding education in hopes of trying to find a different career (life coaching), on my credit card, WHILE I was making a very low freelance income. Dumb dumb! I think I need to write more about that. Thanks for the inspiration! 🙂

    1. I’d love to hear more about that. I think it’s an instinct to go back to school when jobs aren’t there because it seems proactive and occupies your mind instead of sitting around worrying about how to pay the rent. It only delays the inevitable in many cases I think.

  2. I think not having an E-Fund is one of the worst things you can do. Then you are vulnerable to bad schemes like payday loans and credit card rates. Life will hand you bad things so why not be prepared?

    1. Lack of savings is a credit card company’s dream. I’m afraid we played into that for way too long, using credit as an e-fund. Bad idea!

  3. I tend to cringe when people go to school purely because it thinks that it will make them a lot of money. For example, I saw someone post a status on Facebook the other day telling everyone that they decided to go to school and they can’t wait until they make seven figures. I don’t know what she is getting her degree in, but I think she may have unrealistic expectations 🙂

  4. The school thing is such a big deal. I see people blindly go back to or continue on with school because they don’t know what else to do. They think it will automatically lead to increased income down the road and this simply isn’t the case. You really need to do extensive research before committing big dollars to graduate degree programs.

  5. I stayed in a job I hated for some time and realized that it just wasn’t worth it. Thankfully our business was at the point that I could quit, though to be fair, I would’ve stayed longer if needed be. One other thing I’ve seen some do is do numerous HELOCs to pay off credit card debt. I guess it doesn’t truly get them in debt if they still have equity, but eventually it will catch up to many of them to where they will be in debt thanks to it.

  6. I see a lot of people going back to school without factoring in the ROI of that degree. Greg keeps saying he wants to go back to school again and all I can say is NOOOOOOOOOOOOOOOOOO. Totally not worth it at this point!

  7. I would definitely stay in a job I hated to pay the bills, but at the same time I would be doing everything I can to find a job that I DON’T hate. I think these are all great points, and honestly something my wife and I are dealing with. We built up and continue to build up our emergency fund but we need to decide how much we are willing to spend on our next car as mine has become pretty unreliable. My wife is also going back for her masters while I am not going back. The sticker price isn’t cheap so I think it’s important that we only go back if it’s going to directly help our job prospects (it will for her, for me it’s questionable).

    1. I think it’s one thing to need a car vs want a car. Master’s degrees are not cheap, and I certainly get your reasoning.

  8. Oh, dear. Your story about your friends just makes me cringe. We have family members who have consistently played that game for years: bankruptcy, and then back in debt, three or 4 times now over the course of their long marriage. Their story, as you mentioned about you and Jim, is one of the things that keeps Rick and I strong in our goal of paying off debt. We just don’t ever want to go there.

    1. Thanks Laurie. You guys are very inspiring yourselves. It is so hard to watch someone make questionable financial decisions, but you have to smile and nod and be there when things go bad, but hope they won’t.

  9. That last one was a very subtle but very important point that I don’t think a lot of people really think about. Before I started blogging, I was all about furthering my education and getting new training or certificates – until I realized that they weren’t getting me anywhere. As I came to find out in my job or other jobs I had applied for, those extra credentials just didn’t add to my bottom line. And so I decided to look for a better return on my effort elsewhere by getting into investing and side income gigs.

    1. I did that for a while as well. I was writing all these case reports and paying lots of money for a fellowship that really didn’t do anything for me but cost money. My patients could care less!

  10. Kim,
    I would stay in a job I hated to pay the bills but would actively look for another. Being unemployed is way worse than a job that pays well that you hate. I agree with the job prospects and school loans, not understanding your true opportunity cost and trapping yourself in debt.

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