Reasons for Debt


We developed this resource to highlight the many different reasons that people experience problem debt. Your creditors will often ask you why you got into debt and others around might too. We aim to create better understanding by highlighting where things can go wrong.

Income Shock

An income shock is usually the most common cause of problem debt. It’s very rare to come across anyone that has deliberately overspent.

An income shock is when a situation or event that is unexpected and unplanned for creates a problem with your finances. It can happen to any of us at any time and can mean a significant drop in your income or require immediate changes to the way you budget.

You can certainly learn how to plan for some life events, & maybe save some money for a rainy day, but the truth is that not many people have enough spare income to plan or insure for every eventuality.

Nobody can predict the future, but there are many stages in life when important financial decisions are made based on calculated risk, or how you think or want things to turn out. ​

Here are some examples of income shocks:

  • Relationship breakdown

  • Redundancy/job loss

  • Death/bereavement

  • Uninsured/inadequate insurance

  • Reduction in work hours

  • Loss of welfare benefits

  • Expanding family

  • Increase in borrowing interest rates

  • Domestic Abuse

  • Increase in taxation

  • Illness

  • Disability

  • Mental Health

  • Prison

  • Addiction

  • Becoming a carer

Poor Money Skills

It is a myth that poor money skills are just a problem for people with a poor educational background & low literacy levels. Problems understanding money can be identified among almost any demographic group, including people that work in finance!

Some people with problem debt find it hard to manage their finances because they do not understand them. You cannot weigh up the pros and cons of borrowing money if you do not understand them.

Although the government has made attempts to bring financial literacy into the education system, it’s like any specialist subject, not everybody gets it, & not many people find it interesting enough to keep in their busy mind space. The great thing about the debt advice process is that you will learn money skills just by going through it, & coming out the other side.

Here are some examples of things people with poor money skills experience:

  • Do not understand what an Annual Percentage Rate (APR) is

  • Unable to change from a 4 weekly budget to per calendar month

  • Do not know how to check bank statements

  • Not able to shop around on comparison sites

  • Keeps borrowing when they cannot afford it

  • Does not know which bills to prioritise first

  • Cannot do basic maths

  • Do not understand the interest lenders add to borrowing

  • Make no checks on what money is available to spend

  • Not keeping proper accounts when self-employed

Easy Credit

Although, it is important that credit is accessible, it can be tempting to use it as a sticking plaster for problem debt, but eventually it can get you deeper into debt, & even start impacting your priority expenses.

It is no secret that some people in debt take out easy access credit. Some firms and individuals target and sell loans to people that really cannot afford it. Borrowing can seem like the easiest option especially when it is easy to get hold of.

Easy access credit is usually offered at high interest rates due to the increased risk to lend to people with a poor credit score. Bearing in mind so many people have poor money skills, there is a real risk that easy credit can be loaned irresponsibly & make things worse.

Some examples of easy credit:

  • O% interest deals

  • Payday Loans

  • Buy now, pay later offers

  • Consolidation loans

  • High interest loans

  • Automatic credit limit increases

  • Self-certified mortgages

  • Gambling credit

  • Doorstop lenders

  • Loan sharks

  • High interest credit cards

  • Catalogues

  • Overdrafts


Fraud victims can end up with debt, even when they have reported the crime, compensation is not always paid. If you’ve committed fraud, you must tell your debt adviser because these debts are treated differently in debt advice.

Fraudulent debts can either be as a result of a fraudster or as a result of a fraud you have committed. If you have been defrauded, you might be able to claim money back, but not always. If you have committed a fraud, you will need to get specialist debt advice because these are treated differently in debt advice.

It is a sad reality that fraud is rising rapidly, & particularly cybercrime. A common debt from online fraud is through online dating, where somebody single is conned into sharing their banking details & PIN number. Some banks will not pay compensation in these instances.

Some examples of fraud:

  • ID theft

  • Investment scams

  • Tax evasion

  • Benefit fraud

  • Online dating scams

  • Falsifying information to obtain credit

  • Trading as a business while it is insolvent

  • Stealing from an employer

  • Illegal share dealing

  • Money laundering

  • Stealing from family/friends