If you’re up to your ears in debt, chances are you’ve sat down and thought about the cause at some point. But have you ever really scrutinized the reasons behind your debt? We all know, suffering from the stress of debt or not, that it can have disastrous consequences in our lives. Debt can consume your assets, bring about mental stress, and even cause damage to your relationships. There are a multitude of factors that compel people into debt, often a combination of several smaller factors. And many are not aware of the causes behind debt. Although there are plenty of great debt elimination programs like debt consolidation, debt settlement, and debt reduction, you have to be aware of the underlying causes of financial errors in order to avoid being consumed by debt.
Reduced Income: Often your expenses can exceed your income, and debt can form an unhealthy bridge to making things work. If you’ve recently been receiving a lower income than what you are used to, you can’t delay in making adjustments that coincide with that change. Make sure that you understand your change in income and that you create a budget and plan as soon as possible.
Divorce: Today, more than half of American marriages are ending in divorce. With that comes the strain put on personal finances when, all of a sudden, your household is bringing in a substantially lower income. American law governs what should be done with the money accrued by a couple in the event of a divorce settlement. If one party demands too much, the other may be forced into debt due to attorney fees as well as what their former partner deems a necessary part of their settlement.
Poor Money Management: A major cause of debt is just poor budgeting. You MUST have a monthly budget. Without proper budgeting, you won’t be able to track your expenses, which would most likely lead to overspending. If you take a moment to write down your spending for an entire month, you can see exactly where all of your money is ending up. This is the best way to learn where you can cut unnecessary expenses in order to steer clear of debt.
Underemployment: A lot of people faced with unemployment or underemployment feel that it is a temporary issue that will eventually begin to resolve itself with minimal effort on their part. The truth is, it can be more than temporary and it can have a lasting effect on your life, particularly if you end up going into debt in order to make ends meet. If you do find yourself underemployed, calculate your expenses as you begin looking for a second job.
Gambling is an unhealthy form of entertainment in America, appealing to our competitive nature and our quest for easy riches. In reality, it’s only a guaranteed exchange of money between you and ‘the house’. Sure, you may start off fine, with everything under control. But when you start losing larger and larger amounts of money, are you going to have the sense to cut yourself loose or are you going to keep trying to win it all back? As the availability of loans today is enormous, people can easily become attached to the idea of winning big and striking it rich. In fact, those trying to win back what they’ve lost will often effortlessly mortgage their futures to ‘the house’ in an attempt to just break even.
One of the easiest ways to fall into the jaws of debt is through lapsed policies and expensive medical treatments. Absolutely everything to do with medicine costs money, and more often than not, a lot of it. And as the cost of medical treatment rises, the patients of doctors and hospitals with those who are late on their bills declines. Because of this inpatients, hospitals are turning in those who can’t pay their bills to collection agencies. When you don’t have the money to pay for a doctor’s visit, it’s an easy step to put the bill on a credit card, or even to take out a loan in order to avoid the collection agencies. And if you’re suffering from a chronic illness, you may find that your bills just keep mounting, no matter what you try to do about them. And if your illness prevents you from working, you can fall into unimaginable debt in a matter of weeks.
Too Little Savings:
If you save a little money at a time, you can avoid some unwanted debt, simply because you’re better prepared for unwanted expenditures. If you do have a decent amount of savings in place, you can use it for emergencies like a severe illness, losing your job, or getting a divorce; all without the fear of increasing your debt. You’ll never meet someone who regretted saving money for an emergency.
All of the causes of debt listed above are very common for Americans. Often those that fall into debt don’t see it coming until it’s too late. But if you develop good money management and budgeting skills, you can sidestep that debt. Always remember the importance of spending within your means, which will help to further prevent you from the reduction of your accrued wealth. By simply taking prudent steps toward financial responsibility, you will begin to greatly reduce your probability of sinking into debt, or of piling on further debt that you can’t shake off.
This article has been reviewed and approved by Thomas A. Moore, managing attorney Brownstone Law Group, PC. California Bar # 148698. This article is for informational purposes only, does not provide legal or tax advice of any kind or form any type of attorney/client relationship. This article was published on 6/5/16.