I’d like a dollar for every time I’ve heard a politician talk about the issue of debt during the current election campaign.

And while there’s no disputing that debt is certainly a problem in Australia – whether it’s government debt or consumer debt, it still comes down to how to manage your way out of the situation, which is why it’s at the heart of who will win office this Saturday.

So as I’m not a Federal Treasurer or Finance Minister there’s no point putting in my two bobs worth on how to address government debt.

However….what I can do is shed some light on the issue of consumer debt by going through the ten main causes. Because often when you see individual triggers of debt it can become easier to eliminate the cause, rather than trying to manage the symptoms.

So let’s get to it by looking at the Top Ten Causes of Debt:

1. Financial illiteracy. Empower yourself. Choose the right lender/advisor who can help educate you so you’re more empowered to make well-informed and prudent decisions about your finances. It’s also vital to build and update your knowledge by sourcing content on topics and products through a wide range of reliable, independent sources – via online or more traditional means.

2. Reduced income/same expenses.  A sudden event such as job loss may mean we delay bringing our expenses in line with a reduction in income – and out of convenience, or necessity, we let debt fill the gap. The sooner you adjust to your new reality and put steps into place to try to get the situation back to normal, the better off you’ll be.

3. Underemployment. People who experience underemployment may justify it by thinking it’s better than being unemployed – and as a result fall into a false sense of relief. But that’s the time to get your expenses in line with your new income. You can only afford to relax when you increase your income due to more hours, a second job, or a better job – then you can loosen the belt.

4. Saving too little – or not at all. The simplest way to avoid unwanted debt is to prepare for unexpected expenditures by reducing your discretionary spending for 6-12 months and see what you’ve saved as a result. Then with a financial buffer in place there’s less chance that a job layoff, illness or even a divorce will cause immediate financial strain and increase debt

5. Lack of communication about money. It’s vital for partners to communicate with each other (and their children) about finances. Keep the communication open and discuss your financial goals and spending styles. If you’re married to a spender and you’re a saver, you need to compromise early, be honest with each other and map out a strategy you can both work with in the long term. Arguments about money have been the undoing of many partnerships.

6. Divorce. Statistics on marriage breakdowns alone should be enough to convince you that it can happen to anyone. However, although a marriage may seem relatively simple to dissolve, it’s the joint finances and debts incurred during the marriage which are usually the most highly contested element of a divorce.  No one can just walk away from debt, so its important to detail a strategy for moving financially forward which works for both of you – and get it in place as soon as you can.

7. Poor money management. Draw up a budget based on your current income and spending. Whilst this sounds simple, it doesn’t often hit home until you see the figures down on paper and you see where all your money is going and why you may be spending more than you’re earning. This will force you to put more thought into where and when to spend your money.

8. Banking on a windfall. There’s no such thing as a ‘sure thing’. Whether it’s work bonuses, an inheritance or any other potential windfall supposedly coming your way – the lesson is clear: don’t spend the money until the cheque clears.

9. Medical expenses. No one plans to be ill but if you don’t have appropriate medical insurance, or there are gaps in your current coverage, any amount of prolonged time away from work on top of this can be a very costly exercise. Be prepared for the unexpected.

10. Gambling. Whether it’s poker machines, betting at the races or placing bets on anything – it can be addictive, hard to stop and unfortunately there’s always people willing to loan you money to do it. If any of this type of behaviour is getting you into debt, seek professional help before you get into more debt trying in vain to rectify the situation.

Tags: affordability, Budget, Debt, Federal Election, Saving, Spending

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