Especially during this period of the Coronavirus Pandemic, multiple studies have shown that more and more people are starting to get into debt. Why is this happening? Well, there are several important reasons. Some borrow for Home Improvements and Repairs and others borrow out of necessity. Either they have a game frame, or for children’s studies, rentals or others. According to reviews, this is the first option that comes to people’s minds when they need money in the short or even longer term.
Possible causes of debt
One of the most frequently mentioned causes of over-indebtedness is first of all the “classic” – sudden and unexpected unemployment. As a result, fixed monthly costs, ie the cost of living and other ongoing costs for credit liabilities, can often not be fully or not covered at all.
Almost as often, long and serious illnesses are listed as a possible cause of over-indebtedness. An illness or incapacity for work inevitably leads to sick pay, or then to unemployment benefit I. The previous income earned is constantly reduced more and more until suddenly there is only a small amount left to cover the basic needs. Repayment of existing debt has long been ruled out – often the remaining money is not even enough to cover the normal costs of a modest lifestyle.
Causes of over-indebtedness – classified
- unemployment
- disease
- accident
- separate
- divorce
- alcohol
- other dependencies
- Payment of damages
- Sentences to prison
- Fines
- Warranty obligation
- Starting a family
- Maintenance obligations
- inefficient housekeeping
- Lack of experience with banks and credit
Why people go into debt
Those who can tolerate a little delay in terms of needs and rewards and tend to choose the option with the currently greater benefit, ie follow the principle of improvement, are also more prone to indebtedness. In Mischel’s well-known marshmallow test, the children were left alone with a marshmallow for a while with the instruction to eat a marshmallow now – or not, and then receive a second as a reward afterward. The test showed which children were able to develop their strategy and who failed to resist the object of desire briefly.
The principle of improvement also explains why people are willing to go into debt to consume stimulants and addicts, entertainment, or luxury goods. It is not uncommon for debt causes to be followed by other unknown and rather harmful long-term consequences. At this point, we prefer fast food instead of healthy eating or we prefer a small expensive credit to buy the furniture we want instead of fueling the stock of savings in advance. Group membership and social pressure
Delayed reactions to new life situations can also lead to debt. For example, if an adult loses his or her job, he or she will usually be able to reassess the new situation and available financial resources because he or she already has years of experience managing financial resources. As the situation changes, those affected must learn in the past to develop their strategies for new circumstances, such as creating a revenue and expenditure budget. If you have never learned this, it will be difficult for you to adjust to your new financial situation.