Reasons for Debt


We wanted to help people in debt and others to understand how easy it is for out of control debt to creep up on any one of us. People from all walks of life experience problem debt and it really should not be something to feel ashamed about.

The reality is that people often feel embarrassed about owing money that they cannot repay, it is not a case of 'will not pay', it is more a case of 'cannot pay' and of course if someone cannot pay, there are options available to manage debt to suit an individual's financial circumstances.

It is an important part of the debt advice process to ask about the reason for getting into problem debt. From our experience, we identified 4 main reasons (below) for being in debt. It is common to find that more than one of these has led to problem debt.

1. 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.

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. ​

Take a look at the infograph below to see some common examples.

Reasons for Debt 1. Income Shock

2. 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!

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’ll learn money skills just by going through it, & coming out the other side.

Reasons for Debt 2. Poor Money Skills

3. 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.

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.

Reasons for Debt 3. Easy Credit

4. Fraud

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.

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.

Reasons for Debt 4. Fraud