The Debt Cycle and Why People Get Into Debt

Debt can happen for a variety of reasons to very different types of people.

The common belief that debt targets individuals with a low income, and no budget understanding is incorrect.

Our Bankruptcy Canada trustees have worked with clients from all financial backgrounds.

We can safely say that debt doesn’t discriminate where you are from or how much you earn at the end of the month.

While it isn’t to say that households with low income are not vulnerable, they are not the only victims of debt.

One thing we have noticed, however, is that debt tends to start in the same way for everyone.

Indeed, more often than not, the debt cycle follows a familiar path.

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Individuals spend more than they can afford.

They can’t replenish the financial loss they’ve incurred.

As a result, the debt carries a deficit onto your next income period.

In other words, debt feeds debt and creates a vicious cycle, which is hard to escape.

Our experts explain more about the cycle of debt and why people get into debt.

How does the debt cycle develop?

Debt happens when your expenses are greater than your net income.

The situation forces individuals to borrow money to maintain their lifestyle and meet their financial needs.

Unfortunately, what a lot of people don’t realize is that the act of borrowing doesn’t resolve the debt, but only carries it over until the next payment term.

Additionally, you will not be able to find a loan/credit repayment at a 0% interest rate.

When you find it hard to pay off an amount x, you will always struggle to pay off the same amount x with added interest.

Unfortunately, because credit is easily available and convenient, most people rely on credit features to cover expenses.

Borrowing starts the cycle.

However, the perpetuation of the same borrowing mistakes creates a self-progressing cycle.

It is indispensable for individuals to address their lifestyle needs as they enter the cycle of being caught in debt.

The effort to maintain their lifestyle without restructuring finances and reducing expenses has a snowball effect on the debt.

Why do people accumulate debt?

Most people who have debt have faced a situation – unexpected or not – that has increased their usual expenses.

As a result, they spend more than they earn.

Our licensed insolvency trustees work closely with clients to help them escape their debt situation and avoid future triggers that could throw them back into debt.

Most people who incur larger than expected expenses do so for one of the following reasons:


  • Divorce.
  • Gambling.
  • Reduced income.
  • Limited savings.
  • Poor money management.
  • Necessity.
  • Compulsiveness.
  • Pride.


Over half of marriages end up in divorce.

When a household that used to share costs is forced to separate, former partners can experience a new financial burden.

The partner who has to move out and restart from scratch is likely to face a serious financial drain.

Post-divorce life can lead to debt. It is essential for divorcees to establish a new budget that meets their financial abilities.

Gambling has become popular entertainment.

Unfortunately, a variety of apps and online sites have made gambling and betting increasingly accessible.

In a click, people can play for money, which means that they can lose money in a matter of seconds.

What makes gambling especially dangerous, though, is that it creates addictive behaviours in pursuit of the big win.

Individuals are willing to accept losses as they believe they can win back the money, which can develop into harmful habits.

Gambling debt is especially hard to control because people want to play until they ‘win big’.

Services, such as Gamblers Anonymous can provide practical tips and advice to accept your financial situation and free yourself from the addiction.

Trustees can help manage and reduce the debt, but as long as a former gambler remains addicted, it is likely to reappear.

Everybody goes through a tough time.

When the household’s income decreases, it’s hard to bounce back and pay your bills as usual.

However, working with a reduced income, even if it is a temporary situation, requires an adequate budget.

You can’t afford to carry on with your typical lifestyle as if your income had remained unchanged.

It can be helpful to have emergency funds to face financial responsibilities on a temporary basis.

Otherwise, the debt can appear and grow out of control rapidly.

Households with limited savings are unable to face financial fluctuations.

Building emergency funds is an essential part of a healthy budget.

As a rule of thumb, experts recommend saving enough to cover 6 months of expenses.

Understanding how to manage your money will not avoid debt.

But it will ensure that you can control the deficit and restructure your costs accordingly.

A lot of households don’t track what comes in and goes out of their budget, which puts them at risk of building up debt.

Adequate budgeting can highlight potential threats and ensure you don’t accidentally spend more than you can afford.

Additionally, a budget can also provide guidance for emergency savings or significant purchases.

Sometimes, individuals have no other choice than to spend, even though they can’t afford it.

Whether you are helping relatives, supporting friends or trying to secure food and shelter, necessity debt appears when your household lacks essential financial support.

People are forced to rely on credit cards and payday loans for essential expenses.

Do you sometimes have the feeling that you need to buy something?

Compulsive shoppers lack financial discipline.

They spend more they can afford because they build an unhealthy relationship with the shopping process.

It could be a coping mechanism, a feel-good reaction, or any other reason.

Without tackling the compulsion, they can’t reduce their debt.

Finally, the desire to impress and fit in can dictate extravagant purchases and expenses.

You are worried about what people would think of you if you don’t own this or that.

Tackling your debt demons begins in realizing that there is more to you than expensive assets that put your finances at risk.

Here, at Bankruptcy Canada, our trustees understand the cycle and why people get into debt.

We use our experience to provide compassionate and objective debt relief solutions to help our clients.

If you’re looking for a way out of the debt cycle, reach out to a local licensed insolvency trustee

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