For a lot of Americans, few things instill as much dread as a mountain of debt. It’s hard enough to go about our daily lives with regular expenses along the way. But when a portion of every paycheck gets wiped out thanks to a ton of debt that never seems to go away, it can be disheartening.
Debt can come from one specific source, but it can also rapidly grow as a result of unexpected bills coming together at the most inopportune time. One of the best tools you can arm yourself with is the knowledge to avoid debt in the first place – and here at National Debt Reduction Services, we want to help however we can. In addition to providing debt relief services, we’ve put together a list of 6 common causes of debt to help you alert and informed.
Odds are, you or someone you know has encountered an unexpected medical situation that ended up being much more costly than anticipated. Medical expenses come out of nowhere, and they add up quickly. According to a study by the Henry J. Kaiser Family Foundation, more than 1 out of every 4 adults aged 18-64 either knows someone who has had trouble paying a medical bill in the past year, or has had difficulty themselves.
Unfortunately, given the sudden nature of some medical conditions, it’s not always possible to prevent this. A sizable number of Americans have trouble paying medical bills, and that percentage is skewed higher toward families with lower incomes. However, according to the same study, two-thirds of the group who reported having problems paying medical bills were encountering issues due to sudden, one-time bills.
It’s important to try and stash away some money in a rainy-day fund, even if it’s just a little bit at a time. It’s likely that you will experience an unexpected medial expense at some point, and even a small amount of extra help can go a long way.
Problems with Insurance Coverage
This second item applies to medical emergencies as well, but we all have insurance for things beyond just our health. Insurance companies are notoriously difficult to deal with – whether it’s an automobile coverage issue, something involving your home, or another type of insurance – the expenses you can incur from insurance declining to cover your incident can be astronomical.
Sometimes the resulting complications from whatever you tried to get insurance to cover need to be immediately addressed and you can’t wait around to solve them. When that happens, people have to dig deep into savings and pay out of pocket to repair or restore whatever problem has arisen, and this often leaves them in a deep hole to dig out of.
Every business doesn’t succeed, unfortunately. While some take off and take their industry by storm, others struggle to get the wheels moving and eventually fizzle out. Part of the risk of starting a business is committing the money toward getting it off the ground, and even if the owner has the savvy and know-how to run the business efficiently, there’s still a chance that it doesn’t resonate with the intended consumers.
If you’re starting a business and take out a loan from a bank, be sure you know the terms in full beforehand. Know that you might be on the hook for the money regardless of whether the business succeeds or not, and be prepared to pay it back.
Student Loans/Educational Debt
Another aspect of modern life that a lot of people are accustomed to is the practice of taking out loans to pay for college. According to Nitrocollege.com, 1 in 4 Americans have some sort of student loan debt, which adds up to nearly 45 million people. It’s an unfortunate necessity for many, however, since the modern job market is geared toward people who have a degree. Some employers won’t even take a second glance at a resume unless there is a degree listed!
But that expectation means that a great deal of Americans are forced to take out student loans to pay for school. According to the same statistics from Nitrocollege, the average graduate has just over $37,000 in student loan debt with a monthly payment of close to $400. That amount of debt weighs on you, and it can take decades to pay off completely.
Sudden Loss of Income
One unexpected cause of debt is due to something that you truly can’t plan for. While you might be able to prepare for student loans or certain medical conditions, it’s not easy to compensate for a loss of income. Whether it’s because you’ve lost your job or had a steady income stream suddenly dry up another way, losing your source of money is difficult no matter what.
While it’s difficult to bridge the loss-of-income gap smoothly, you can do your part to ease the hit in the event it does happen. Bankrate.com conducted a survey in January of 2019, asking how people would hypothetically pay for a sudden $1,000 expense, such as a car repair. Only 40% said they’d be able to use their savings – 3/5 of respondents wouldn’t be able to cover it immediately.
That’s a sobering statistic. With how many people are living paycheck-to-paycheck currently, one emergency – including loss of income – could be devastating.
We’d all prefer to think of ourselves as pretty responsible spenders. Most of us can usually come up with a reason to justify why we buy certain things for one reason or another, even if it only makes sense to us. Without a check on our spending, we can easily end up drowning in debt before we know it.
Whether it’s through racking up interest on credit cards or simply the urge to buy something in the heat of the moment, overspending can drown you quickly, which makes excessive spending one of the most common causes of debt.
However, sometimes spending isn’t a problem because of a self-control issue. Sometimes it’s because of an expected financial windfall that simply doesn’t happen. Tax returns that are smaller than you expected, lighter bonuses at work or a lesser gift than you’re accustomed to are all common reasons for accidental overspending – but you still end up in debt. Evaluating your spending habits is critical, and it will be truly beneficial in the long run.
Issues with Shared Accounts
If you have a joint account with a spouse or significant other, it’s imperative that you both establish expectations for what the account will be used for, and what the limits are on spending.
The worst thing that can happen is for one (or both) of you to use the account as if it were solely your own. Withdrawing funds without any culpability to the other person can create several issues – including an overdrawn account.
When you’re not on the same page, not only will the finances suffer, but your relationship could strain as well. If the account is supposed to be used for emergencies only and one of you spends from it every day, you could end up in debt. A car accident or medical emergency could wipe out that joint account – in addition to compromising your relationship!
Don’t Let Debt Sneak Up on You!
Debt can rear its ugly head in any number of ways. Whether it’s through a sudden medical emergency or a long-term strategy that suddenly gets thrown out the window, debt doesn’t discriminate. It treats all of us equally, and the effects it can have on you and your family can take decades to shake off and get out from under.
But you’re not powerless! Although debt exists, you have the tools and resources to fight it. The best decision you can make is to take steps to prepare for a financial emergency before it occurs. That means avoiding the classic pitfalls that most people fall into with spending – general financial responsibility will go a long way, but that obviously doesn’t cover all causes of debt. In addition, it’s good to put a percentage of every paycheck in the bank every payday. An emergency fund goes a long way!
Sometimes even the best-laid plans can’t help when an unexpected financial debt is incurred.
That’s where we come in. National Debt Reduction Services has a wealth of knowledge and experience in helping people eliminate debt, and we can help you too! Call today for a free, no-obligation debt review from our debt resolution experts, and see how we can get you started on the path to being free of debt today!