Why Is It So Hard To Get Out Of Debt?

Debt is easy to get into—an unexpected medical bill, losing your job, or buying something on the spur of the moment can add up fast. But getting out of debt often feels impossible. Interest rates can keep your debt from going down much even if you make your monthly minimum payments on time. This keeps the cycle going because so much of your monthly income is going to paying down your debt that you won’t be able to save and unexpected costs will keep coming up.

So why is it so hard to get out of debt? There are several key reasons

High Interest Rates

Credit cards and other debt typically charge very high interest rates, often 15% or more. This means a large portion of your payments go towards interest rather than paying down the principal balance. For example, if you owe $10,000 on a credit card with 18% interest and you pay $250 per month, it will take over 9 years to pay it off and you’ll end up paying $7,562 in interest. The higher the interest rate, the harder it is to make progress.

Minimum Payments Are Too Low

Companies that give you credit cards only want you to pay a small amount every month, usually between 1% and 2% of your balance. This barely covers the accruing interest. At that rate, it might take decades to settle up on a lot of debt. Lenders make more money from interest, so minimum payments are meant to keep you in debt longer.

Unexpected Expenses

If you’re trying to pay off debt by living from paycheck to paycheck, any unexpected costs can make you take on more debt. A car repair, a medical bill, or a short-term loss of income can quickly make it impossible to pay off debt. You can’t avoid putting these costs on a credit card or loan if you don’t have any savings. This makes the hole bigger.

Lack of Budgeting

Not budgeting or tracking spending is a key reason why people struggle to pay off debt. Without understanding exactly where your money is going each month, it’s impossible to identify areas to cut back in order to allocate more towards debt repayment. Simple overspending or “little” purchases quickly add up without a budget.

Using Debt to Pay Off Debt

A lot of people mix their debts or borrow money to pay off other debts. This may help you make payments more easily, but you will still be in debt and have to pay interest. It makes you feel better for a short time, but it doesn’t change your overspending habits for good. If you keep “robbing Peter to pay Paul,” you’ll never get out of debt.

Ignoring Small Debts

It’s tempting to focus on paying down large, high-interest debts while ignoring smaller ones. But even debts under $500 need to be tackled quickly before interest grows. Letting them linger can mean paying 2-3 times more before they’re settled. Small debts turn into larger ones when ignored.

Lifestyle Inflation

As income rises, it’s easy to increase spending on non-necessities. Upgrading homes, cars, dining out more often, and spending more on entertainment make it challenging to allocate extra income to debt repayment. Lifestyle inflation keeps debt balances from decreasing and perpetuates financial struggles.

Using Debt for Daily Expenses

Relying on credit cards or loans for daily necessities like groceries and utility bills indicates a significant cash flow problem. When debt is funding living expenses, it’s very difficult to even make minimum payments, let alone pay down balances. The habit of using debt for everyday costs needs to be addressed immediately.

Poor Money Habits

Bad money habits like overspending, lack of saving, no budgeting, and using credit cards recklessly can be very difficult to break. They often require professional help from a credit counselor or financial advisor to correct. Lifelong money management habits won’t change quickly or easily.

Low Income

For people earning low wages or living below the poverty line, getting out of debt is extremely challenging. When income barely covers basic living expenses, paying off debt requires drastic lifestyle changes or working additional jobs. There is little wiggle room in the budget.

Not Understanding Interest

If you don’t fully grasp how much interest increases debt balances over time, it’s easy to underestimate the urgency of repayment. Failing to recognize and calculate the true impact of interest leads to an inability to develop a workable repayment plan. Knowledge is power when paying off debt.

Debt From Multiple Sources

Having debt from student loans, auto loans, mortgages, credit cards, medical bills, etc. makes paying it off seem impossible. Tracking different due dates, balances, interest rates and minimum payments for several debts becomes a challenge. The more fragmented debt is, the harder it is to manage.

Using Savings to Pay Down Debt

Dipping into savings to pay off debt provides temporary relief. But it leaves you vulnerable to the next financial emergency. Rebuilding depleted savings while paying off debt is very difficult. It’s better to cut expenses or find additional income to avoid compromising your financial safety net.

Not Increasing Income

To make real progress on debt, you can’t just cut back on spending. Finding ways to increase income whether through raises, bonuses, side jobs or a new career is crucial. Without more cash flow, it’s extremely difficult to pay off debt while still covering living expenses.

Poor Credit Score

Once debt has damaged your credit score, it makes paying off debt harder since you can’t qualify for affordable loans or credit cards with lower interest rates. Poor credit keeps you stuck paying higher interest that slows down repayment. Restoring credit is key.

Unemployment

Losing a job makes debt repayment nearly impossible. Even with unemployment benefits or severance pay, covering daily costs takes priority over paying off debt. Until new income is established, debt balances will continue growing from accruing interest and late fees.

No Accountability

Paying off debt requires discipline and diligent tracking of progress. Without someone to hold you accountable like a spouse, friend or financial mentor, it’s easy to veer off course. Accountability provides motivation to stick to repayment plans in tough times.

Not Prioritizing Debt

Failing to recognize debt repayment as a top financial priority leads to continue mismanaging money and delays getting out of debt. Paying off debt faster requires focusing on it above other financial goals until balances reach zero. Lack of urgency extends repayment timelines.

Disorganization

Poor record-keeping and tracking of monthly debt payments makes it harder to analyze your situation and repayment options accurately. Disorganization leads to missed payments, late fees, and misunderstanding the true payoff timeline. Get organized to get out of debt faster.

The road to becoming debt-free has many obstacles. But identifying the specific hurdles keeping you stuck in debt allows you to address them directly and permanently. With diligence, budgeting, responsibility, accountability, and financial guidance, you can take control of your debt situation and work towards freedom.

The 7-in-7 rule, also known as the 777 rule or 7×7 rule, is a guideline in debt collection that limits how often a debt collector can contact a person about a particular debt. Specifically, it means a collector cannot call a consumer more than seven times within a seven-day period about the same debt.