Top 10 Overlooked Causes of Debt

Top 10 Overlooked Causes of DebtOver the past decade, more and more people have found themselves deep in financial debt. While there may be some obvious reasons why some people have gotten into debt, there are also many other overlooked factors that could have led to their accumulation of debt.  I have spent a good amount of my adult life in debt. I know how it feels.  There is nothing fun about it, but that doesn’t mean it has to define you.  Remember that you are the one in control of your money, so don’t let it take control of you.  We all make mistakes and debt should be one that you only make once.  I don’t plan on making the debt mistake again, so I hope you do the same.


The first cause of debt is overspending. Most people who are in debt have gotten into financial trouble because they have spent too much money. While this might be very obvious to some, it is often overlooked by many. This is normally due to not setting up a budget or sticking to it.  If you are spending more than you earn, then you first need to figure out how to cut your expenses.  You can check out the Simple Saving Sunday series for great tips.  Once you cut expenses, then it is time to figure out how to make more money.  In order to stop overspending, then you need to make more than you spend.

Medical Costs

The second overlooked cause of debt could be medical costs and expenses. If someone has to go through a major medical procedure, there is a good chance that their insurance will not cover everything, or they may not be insured at all. If this is the case, then they could easily accumulate tens of thousands of dollars of debt.  It is hard to fight the massive cost of procedures, but the best thing you can do is shop around.  You don’t have to go to a specific hospital, unless you have insurance and it forces you to go there.  It still doesn’t hurt to check pricing.


The third overlooked cause of debt is inflation. Many people do not realize how much the cost of living goes up each year. Between housing, food, gas, and other expenses, most people will not receive an annual raise to offset their increases. If they are not able to cut back on spending, this will lead to more debt.  If you are leaving your money in a regular savings account, then your savings will be stripped because of inflation.  While most savings accounts don’t give a good return, one of my favorites is the American Express personal savings.

High Interest Charges

The fourth overlooked cause of personal debt is high interest rates. Many credit card accounts today have interest rates in excess of twenty percent. These can make it impossible to repay all of the money that they owe.  Credit card debt is a big problem in our society.  It requires discipline to get rid of and stay away from.  I used to be in credit card debt, but now I understand how to use them wisely.

Lack of Insurance

Not having insurance is the fifth overlooked cause of debt. This applies to both individuals and businesses.  Without adequate insurance, especially health insurance, many people struggle to stay afloat when an emergency happens.  The same goes for small businesses.  For example, if a small business owner foregoes taking out general liability insurance or another form of insurance, they could be facing a significant financial loss if they are sued or an accident occurs.  Business insurance is extremely important for any business just for basic protection.

Identity Theft

The sixth cause of debt is identity theft. Identity theft occurs when someone illegally opens up an account in another person’s name and then runs up a significant amount of debt. The victim could then be left with a lot of debt that they are required to repay.  Identity theft is on the rise around here.  Just remember what has happened to Target and other large retailers.  If you are scared of identify theft, then check out the services from LifeLock!

Lack of Financial Knowledge

The seventh overlooked cause of personal debt is lack of financial knowledge. Many people simply do not have the financial education or experience necessary to make good financial decisions. These people may end up relying on credit cards or taking out high interest loans because they do not know better.  This is the main reason why Wealth Bytes and the many other great personal finance blogs exist.  I am here to not only share my story, but to provide access to helpful information about money.

Expanding Families

Expanding families is the eighth overlooked cause of personal debt accumulation. Many single and married people may feel that they have plenty of extra money, but once they have kids that can easily change. In some cases, families may have to forego one income altogether, which can make staying on top of their finances tough.  If you don’t have kids, then you might not  understand that daycare also costs a lot. We spend a good amount of money every month on daycare.  Yes, there are cheaper services out there, but it shows why that is so.  You will be asking yourself “where did all the money go?”


The ninth overlooked reason why people accumulated debt are taxes. While federal taxes for most people have been flat for over a decade, state, local, and produce taxes have continued to increase. This has led to the average person having less spending money, which has led to an accumulation of debt.  Since it is close to tax time, I certainly know this is true.  We get taxed here, there, and everywhere.  If we make more money, we get taxed more.  It is a losing battle.

[box type=”note” ]As you know, the tax deadline is approaching. If you haven’t started your taxes yet, then I recommend TurboTax. I have been using it for years and have never had any issues.[/box]

Poor Investments

The 10th reason people can accumulate debt are poor investments. Some people may look to invest in their own business or invest their money otherwise. While they may have had good intentions, if an investment goes bad a person could lose their money and have to take out a lot of debt.  Investing can be complicated, but it doesn’t have to be.  Don’t fall for anyone telling you that you will beat the market by X.  This is probably going to end up costing you a lot of money.  I keep my investments simple and to the point.  I like using Scottrade as my investment platform, while easily investing in ETFs.

In conclusion, the amount of personal debt has continued to increase over the past few years. While there are some obvious reasons why people have accumulated debt, there are also ten commonly overlooked causes of personal debt accumulation.

I am sure that I missed quite a few, so let me hear what you would add to this list?  I have more in my head, but this is a top 10 list.

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  1. Love the shout out to insurance! People hate on insurance until the moment it saves them from some crazy bills they could never afford. It’s not the most fun thing in the world to pay for, but I happily do it for the assurance that my family won’t be financially devastated.

    1. There are way to many people that hate on insurance, but they love it when it saves their butts!

  2. I might add something like “Poor Decisions” to this list. In my mind poor decisions would include things like buying a house with no money down, buying too much house, loaning money to someone who is unlikely to pay it back, co-signing on a loan for someone who is unlikely to be able to pay it back, taking out a ridiculous amount of student loans to obtain a job that pays peanuts, etc. So often the true financial impact of decisions like that does not hit home until years later.

    1. Poor Decisions is a good one. Thanks Dee! I have had many of those over my lifetime.

  3. This is awesome Grayson!!! Medical costs, having children and taxes are three big ones that people rarely plan for, even though they are inevitable, and because they have not planned for them, they really wreak havoc on the finances. It is why I am such a big proponent of healthy emergency funds. You just never know what expensive event is around the corner.

  4. Overspending was our downfall…..and that overspending was due to a sense of entitlement and lack of communication. We have to have our communication firing on all cylinders if my wife and I want to be financially successful!

  5. Great post! I definitely agree with all of these. Insurance may be expensive at times upfront, but it can save you from busting your budget with medical bills later on.

    1. Sure can. Insurance can cost a pretty penny, but it can also save you from financial ruin.

  6. Good post Grayson! Mine went back to good ol’ overspending and that sense of entitlement that Travis mentioned. I felt that I was entitled to something simply because I wanted it and gave no thought to what it would cost – boy was I stupid! 😉

    1. Me too John. Thought I deserved something that I shouldn’t have. Lesson learned!

  7. jane savers @ solving the money puzzle says:

    I would include guilt as one of the things that causes debt. Mom guilt.

    As a single mom I often felt badly about things I thought my children were missing and tried to buy them happiness to make up for the times their father ignored them and forgot their birthdays and Christmas and graduations. My youngest went to Europe 3 times with class trips when he was in high school because I was worried about him missing out.

    1. I can’t say much about mom guilt, as I am not a mother, but guilt is a good one. I have seen that with many people before!

  8. Raquel@Practical Cents says:

    Many people are in Denial as to what they can afford which leads to the bad habit of overspending.

  9. Great list, Grayson! One thing I have noticed that many people tend to spend more than they realize when they pay everything with a credit card, even if they are paying the balance in full. Because they know they have the money (or credit limit), they don’t stop and think before buying sometimes to make sure it fits the budget. Then the bill comes and it’s more than the expected. The lucky ones can still pay it full and the others just add more debt. And yes to insurance! Yes, you may grumble everything you pay the bill but you’ll be so glad you did when an emergency strikes.

    1. I used to be that way, but now I only use my credit card for all purchases. I don’t pay more than I normally would, but that is because I learned a hard lesson. It all depends on your mentality about your money.

  10. Michelle @fitisthenewpoor says:

    Medical bills made up the majority of my debt when I was just out of college. It’s insane to think that I actually have paid off around 20k in debt just in medical bills!

  11. Great points Grayson. I think inflation and poor investing go hand in hand. A lot of people are confident letting their savings account grow, without realizing how inflation is eroding their purchasing power. If they were to invest that money properly, even in something as simple as a Vanguard target date fund, they would be much better off, as stocks are some of the best hedges against inflation around. Even just some treasury inflation protected securities would be better than earning .05% a year APY.

    1. You are right there Ryan. I completely agree! You are always losing just keeping money in a savings account. I only have a majority in my savings because I need to pull it out soon without losing any in the market.

  12. This is a great list. I think inflation is really important, and I think it’s something that tends to catch up to us when we least expect it. This is why tracking spending is vital to me. Grocery and gas prices do fluctuate a lot, and you have to take that into account! I try to be a smart shopper and know the prices, since grocery stores love to put things on “sale” for maybe ten cents less than the normal price.

    1. Fluctuating prices really can get you in trouble. This is a case when your budget it extremely tight and you don’t have any room to grow.

  13. I think health insurance is so important for the very reason you raised. A lot of health expenses that go past the $10k+ mark are unexpected. It’s happened to my wife and me the past couple years and I’m so thankful for insurance as well as for an HSA that lets me save for health expenses over a long period of time.

  14. Great list here, Grayson, and I think you’ve covered pretty much all of it. I can think of SO many other things that could go under “overspending”: too many sports for the kids, too many home improvements, constant upgrading of vehicles, too much going out – those things all add up so quickly!

  15. Anneli @thefrugalweds says:

    Wow you hit on a lot of things on here, Grayson! In the past year, I’ve dealt with a very serious case of identity theft and let me tell you what a nightmare it was (AND IS!) Thankfully, it wasn’t too much of a financial burden (except for mailing costs and the investment of time to get it out of my credit reports!)

    We always aspire to do the best we can financially – and there’s always room to improve. There was a point when I realized that latte from Starbucks is literally costing us $500 a year – it was easy to cut that out. In the case of taxes and interest rates, it’s not so obvious. It helps to be meticulous and look at the finer details.

    1. Glad you got it taken care of Anneli. There is nothing fun about identity theft.

      Ah, the good old latte factor. Many people don’t look at the overall cost of getting coffee everyday. It can cost some good money.

  16. That’s a pretty comprehensive list!
    I think you could also say that every single item on the list falls under a single header – failure to plan.
    1. You’ll over spend if you don’t have a budget and plan where your money will be going.
    2. High interest on debt only matters if you carry a balance because you didn’t plan out your budget in #1.
    3. No insurance? So you didn’t plan to ever be sick, unable to work, have home or vehicle damaged?
    4. Lack of knowledge/poor decisions – I’d bet most people spend more time researching a vacation than to acquire the knowledge needed to manage the finances that will support them through to retirement. I get that lots of people aren’t interested or it doesn’t come naturally to them, but in the end it doesn’t matter. You’re a grown up and need to take responsibility for educating yourself so you can make informed choices. You may still make mistakes and hindsight is 20/20 but at least you’ll be making the best decision you could at the time.

    That last one is my personal pain point. I really only got my financial act together in my 40s and am regularly annoyed with myself for the wasted decades when I didn’t make the most of our financial resources. We didn’t rack up debt, just a mortgage, but we sure didn’t accomplish what we could have. Had I known at 25 what I knew at 45 I could have been retiring at 45 instead of just figuring out.

    1. Great point JMK! Everything can really go under two headings I think. The lack of knowledge and the lack of planning.

      Though I am only 30, I feel like I wasted quite a few years just doing stupid money things. Had I done what I am doing now, I would have a nice nest egg. It is always hard to catch up in the retirement game! Best of luck to you.

  17. Lauren Kay @ Credit Card Offers Directory says:

    Couldn’t agree more about the insurance. People need to make having insurance a priority; otherwise, they are just gambling with their financial health.

  18. This article is great, very accurate and on point.
    I would like to add that I believe money habits are generally learned from your parents/care givers from an early age.
    If you grow up observing parents being careless with money it’s likely this will be your fate.
    Break the cycle! 🙂