If you’re a lawyer, you make plenty of money.
It doesn’t matter if you’re in big law or working in the public sector.
And, if you’re a lawyer in debt, your income is not the reason why.
I know lawyers who make a lot of money and are in a lot of debt. I also know lawyers who make modest salaries and have no debt.
Income is not the problem.
The problem is what you are doing with that income.
You may tell yourself that more income would solve all your debt problems, but it won’t.
Not unless you understand how you got into debt in the first place and are ready to do something about it.
Today, we’ll look at my three theories why lawyers end up in debt.
Looking at each of these explanations can help us understand and avoid common pitfalls that lead us into debt.
Of course, it’s expected that young lawyers will have student loan debt. While student loan debt may be considered good debt, the problem is that it can spiral into other forms of bad debt.
For example, student loan debt becomes the excuse for why we fall into consumer debt:
“I have to pay my loans this month, but I also want to eat out with my friends. I’ll just use my credit card.”
This is exactly what happened to me at the beginning of my career as a lawyer, and what I want to help you avoid.
If you fall into bad habits early, the problems only magnify when your income rises and your potential to spend rises.
The key is to eliminate the bad habits before they become bad habits. If it’s too late for that, now is the best time to correct those bad habits before the situation spirals.
Before we get to my theories why lawyers are in debt, realize that you’re not alone if you are a lawyer in debt.
Unfortunately, the data shows that debt is all too common in today’s world. Let’s begin with some scary stats about debt.
Here are some scary stats to help explain why lawyers are in debt.
According to the Federal Reserve Bank of New York, total household debt in the United States grew to $18.04 trillion by the end of 2024.
That’s such a big number, it’s hard to know what to do with that information.
Let’s break it down by the type of debt:
- Credit card balances increased by $45 billion from the previous quarter and reached $1.21 trillion at the end of December 2024.
- Auto loan balances increased by $11 billion to $1.66 trillion.
- Mortgage balances also increased by $11 billion and reached $12.61 trillion.
- HELOC balances increased by $9 billion to $396 billion.
- Other balances, reflecting retail cards and other consumer loans, increased by $8 billion.
- Student loan balances increased by $9 billion to reach $1.62 trillion.
While these numbers are still too big to comprehend, one powerful conclusion is hard to miss:
In every category, the amount of debt increased from the previous quarter.
This pattern of increasing consumer debt has been consistent for some time now.
HELOC balances have increased for eleven consecutive quarters.
Credit card balances have increased or remained the same for 10 of the last 11 quarters.
Let’s look closer at credit card debt for a moment.
According to a recent survey looking at credit card debt in 2024 by Bankrate.com:
- 48% of credit card holders carry a debt balance, an increaseof 9% since 2021.
- 53% of the people have been in credit card debt for more than a year.
- The main causes of credit card debt are unexpected medical bills (15%), car repairs (9%) and home repairs (7%).
According to another Bankrate.com survey, 33% of Americans report they have more credit card debt than emergency savings.
These last couple stats help us understand why so many people fall into debt in the first place.
Some of it has to do with the failure to have emergency savings. When we don’t have savings, the first place we turn is to our credit cards.
Even more has to do with the failure to keep our spending in check, or living below our means.
Why is it so hard for lawyers to live below our means?
“Live below your means.”
“Money doesn’t grow on trees.”
“Don’t break the bank.”
We’ve all heard these common money phrases. If you were to ask someone older than you for one piece of personal finance advice, I’m betting you’ll hear one of these lessons.
Let me know if I’m right about that in the comments below.
There’s a reason these phrases are so common. They’re simple and easily reflect some of our core personal finance principles:
- Live below your means = keep more of the money you earn.
- Money doesn’t grow on trees = think about the limited resource that is money before it disappears.
- Don’t break the bank = don’t exceed your budget.
Most of us understand that it makes sense to spend less money that we earn, right?
How many of us remember rolling our eyes as kids after our parents wouldn’t buy something we wanted because money doesn’t grow on trees?
I’ve started using this line with my own kids.
Does anyone truly disagree with these lessons? If so, I’d be very appreciative to hear your perspective in the comments below.
Why is it that we can all agree with these core personal finance lessons and at the same time choose to ignore them?
For example, we intuitively know that we should live below our means, but nearly half of us carry a credit card balance.
On top of that, hardly any of us are completely satisfied with our savings.
It’s not that we want to have high debt and low savings.
So why is this the reality for so many of us?
Here are my three leading theories.
1. We fall into debt because we are simply careless.
When I struggled with debt at the beginning of my career, it was basic carelessness.
I didn’t have any idea how to budget or make intentional choices with my money. I had never thought about why or how to be good with money.
Like many people, I failed to create a budget and assumed that my W-2 income was plenty. I ignored emergency savings and never even thought about creating Parachute Money.
The saddest part is that I didn’t even realize that I was slipping backwards. I had no idea because I didn’t track my net worth or saving rate. I worked hard all year long and just hoped things would work out.
By the way, if this sounds familiar, you should know by now I’m not judging anyone. I’ve been very open about my money mistakes.
We all deserve a chance to learn about and talk about strong personal finance habits. That’s why I’m on a mission to flip the script: talking money is not taboo.
2. We don’t plan ahead for emergencies.
So, being careless with money is one common reason lawyers fall into debt. Another common reason is that bad things happen in life.
This might include medical emergencies, home repairs or car troubles. It’s not our fault that these things happen. But, it is our fault if we’re not prepared in advance.
While these events are unfortunate, and maybe even tragic, they are not unexpected. We all need to expect that bad things will happen.
Preparing for the unexpected is part of every solid organization’s planning.
In government, planning ahead means having a “rainy day fund.”
When managing properties, planning ahead for big repairs means having a “Capital Expenditures” or “Cap Ex” fund.
For our personal finances, planning ahead means having an emergency fund.
Whether it’s government, business, or personal finance, the goal is to have options other than taking on debt to get through challenging circumstances.
3. Blame the Kardashians.
Besides carelessness and emergencies, there’s another powerful force that contributes to rising debt levels across the world.
This force is nearly impossible to ignore. It’s become a part of our daily lives, whether we want to admit it or not.
What is this powerful force that contributes to our rising debt levels?
The Kardashians.
OK, not just the Kardashians, but they’re kind of the mascots.
The era of social media and on-demand entertainment has made it harder than ever to avoid temptation. It’s everywhere we look.
Blaming the Kardashians realtes to another timeless, common money phrase: “Keeping up with the Joneses.”
The Kardashians are the modern day Joneses.
Once upon a time, “the Joneses” represented your neighbors, people you could observe from a distance on a regular basis.
The idea behind the phrase is that you can see what your neighbors are spending money on and are either consciously or subconsciously tempted to do the same.
If your neighbors buy a new car, you buy a new car to keep pace.
If your neighbors vacation in Australia, you research diving tours at The Great Barrier Reef.
When you notice your neighbors hosting a backyard BBQ party with lots of happy looking people, you decide to host a party the next weekend.
As humans, it can be difficult to ignore the temptation to keep up with our neighbors.
Whether we like it or not, we are concerned with our social status. Part of our self-worth gets tied to comparing ourselves to others.
Who better to measure up against than the people in our neighborhood who we probably have a lot in common with?
Keeping up with the Joneses is compounded in the professional setting.
This same idea is oftentimes compounded in the professional setting, like at law firms. It is not uncommon to compare ourselves in the same way to our colleagues at the office.
This is especially difficult for lawyers. Fair or not, society generally expects lawyers to make a lot of money and have nice things.
If a partner at your firm joins a country club, wears fancy clothes, or sends her kids to private school, you may feel pressured to do the same.
It’s easy to get caught up in expensive tastes when you’re expected to fit in, even if you don’t have the money to spare.
One of my favorite personal finance books, The Millionaire Next Door, discusses this concept in detail.
I highly recommend you read this book if you are struggling with comparing yourself to others.
So, what’s the solution for lawyers in debt?
Deactivate social media? Cancel the internet?
Nah. If you did that, you’d miss out on epic Instagram reels like this one where I share my top five favorite personal finance books.
Instead, the first part of the solution is to recognize when you’re making careless money decisions based on what you think other people are doing.
Making money decisions based off of your neighbors, let alone the Kardashians, is the fast road to debt.
You have no idea why or how another person is spending money. For all you know, it’s all for show and that person is barely getting by.
Do you really want to blindly follow this person’s choices? Wouldn’t it be better to confer with people you trust to help you think through money decisions?
The second part of the solution is to recognize that everywhere you look, companies are clamoring for your dollars.
Not an exaggeration: nearly $2 Trillion (with a ‘T’) of marketing dollars are spent worldwide each year with one goal in mind: to separate you from your money.
If you let that reality sink in, you’ll hopefully pause the next time you’re about to spend money on something you don’t actually care about.
You make plenty of money as a lawyer. Your income is not the reason you’re in debt.
As a lawyer, your income is not the reason you’re in debt.
You make plenty of money. The issue is what you do with that money.
This is where we circle back to money mindset.
You need to have a competing force in your life that’s strong enough to overcome all the noise.
I’m referring to your ultimate goals in life. I mean the reasons you wake up every morning to get to the firm or stay up late to finish a brief.
Why are you working so hard?
When you can answer that question, you’ll know what your ultimate goals are in life.
With those goals in the forefront of your mind, it’s much easier to make consistent, intentional money decisions.
Most importantly, you’ll stay on budget and avoid sinking into debt.
You’ll also be much happier when you stop worrying about what random strangers are spending money on.
If you’re a lawyer in debt, are there other explanations for how you got there?
Let us know in the comments below.