Getting out of debt is definitely a difficult thing to do especially when you are regularly plagued with utility bills, phone calls in the workplace and letters from lending companies. Over accumulation of debts can give you emotional and psychological burden and in worst cases, it can cost you your assets and properties.
In the short run, debt can be beneficial as it offers immediate relief to the borrower especially in stressful and crucial circumstances. However, when repayment time comes, problems arise. Inability to pay your debts on time may incur drastic negative impacts in your life.
In times of uncontrollable financial burden, many people tend to seek protection of the law by declaring bankruptcy. It is one of the best ways to get out of debt all at once. Debt can also cause people to get evicted from their homes. In some cases, it can cause wage garnishment, foreclosure of mortgaged property and emotional troubles which can even lead to suicidal tendencies.
Despite the impacts of making debt, why do people continue to obtain it?
Why People Fall Into Debt
When consumers are asked why they have fallen into huge debts, the most common answer would be "lending companies are widely available and they have been so lenient about allowing me to borrow money regardless of my capacity to pay".
There are lots of factors which can trigger people to obtain debt. Poor management of income and finances is perhaps the most common cause of debt. Most people today tend to spend more than their means. Undeniably, there are people who have difficulty in controlling their spending behaviours. Also, there are others who have not developed the habit of saving. Whenever an emergency arises, they turn to lending companies and even to loan sharks just to finance their immediate needs.
Other factors include reduced income, unemployment and divorce. These are unforeseen or unanticipated circumstances which may force a person to apply for debt. The high cost of medical expenses during emergency situations such as accidents and loss of a loved one can also drive people into debt.
Why Do People Fall Into Debt- Neuroscientists Explain
This is less commonly known but brain activity actually influences the decision of people in making debt. Using the Anticipatory Affect Model, neuroscientists explain why people fall into making debts.
Assumptions of the Anticipatory Affect Model The model works under an assumption that all future outcomes bring about certain degrees of uncertainty which may induce potential losses or gains. The anticipation of certain gains increases arousal and valence which gives rise to certain emotions such as excitement. This promotes approach behaviour.
On the other hand, anticipation of potential losses reduces arousal and valence which paves for the occurrence of certain negative feelings such as anxiety. While potential gains promote approach behaviour, potential losses on the hand promotes avoidance behaviour.
Potential gains stimulate arousal and activation of the nucleus accumbens which facilitates risk taking. Meanwhile, negative arousal elicits the activation of the anterior insular which reduces a person's risk taking ability.
The Anticipatory Affect Model Explains Debt
Basically, the promise of immediate monetary gain from debts increases a person's positive arousal and activation of the nucleus accumbens thereby increasing his ability to take risks. On the other hand, delayed monetary losses might not result to negative arousal. Instead, it was found out that the activation of the anterior insular during the anticipation of losses increases a person's ability to avoid monetary losses.
Studies show that people who have rapidly learned to seek monetary gains have more financial assets while those who have rapidly learned to avoid monetary losses have fewer debts.
Scientists concluded that differences in the activation of the anterior insular accounts for some people's avoidance from losses. People who are sensitive to potential losses are more likely to avoid debt. They have further concluded that the lack of sensitivity towards any potential loss plays a major role in promoting debt.
