Approximately 344 million Americans are currently in some form of debt according to recent research and there are many reasons why this happens each year. A major contributor to this is due to home loans or mortgages. Another major cause is credit cards, with many people not understanding the effects of misusing them, such as by maxing them out or by not repaying.
This article will explore in more detail why millions of Americans, each year, fall victim to debt. In addition, we’ve got some quick tips on how to better manage or avoid debt.
What are the main causes of debt?
Though there is not a set answer as to why people fall into debt, there are some major reasons why they do. Below, find some of the major contributors to why Americans fall into more debt each year:
Relationship breakdowns
One of the main reasons why Americans face debt is either due to divorce or a relationship breaking down. The reason for this is that when a couple lives together or relies on one another, they will often live off of two incomes. If a relationship then ends, an individual may find they can’t keep up with their current lifestyle and may have to turn to forms of debt, like a credit card or short-term loan. There are many reasons why single people pay more for car insurance than married people; but regardless of why car insurance is another bill that can be affected by a relationship ending.
Not managing money properly
Not managing money properly is a major reason why citizens across the US fall victim to severe debt each year. Individuals that continue to spend and don’t know where their money is going may likely fall victim to debt. Budgeting is a great way to manage your money better (and may mean you can save while you do).
Unexpected costs
Sometimes, people get into debt because they really have no other choice. An individual may suddenly fall ill and need a loan to help cover medical costs, or perhaps they need some extra money to help fund travel costs and there are numerous loan providers who may be able to help in some circumstances. Likewise, the high costs of living are also unpredictable and another reason why Americans have to use loans to help cover the costs of everyday living.
Student debt
In America, student debt is another major contributor to debt. Paying this back can be very difficult and may take time.
Job loss or unemployment
Those that have suddenly lost their jobs may then require to take out loans in order to avoid further debt. For instance, to pay bills, rent, and food. Likewise, those unemployed may also rely on loans to get through day-to-day living.
How to manage your debt better
Being in debt can be extremely stressful and can have knock-on effects. For example, struggling to pay for ongoing payments may then cause credit scores to drastically worsen. Then, in turn, it’s made more difficult to get accepted for new loans or even jobs.
While being in a cycle of debt may seem inescapable, it’s not. There are ways to help better manage the situation, such as:
- Budget: Sit down and plan out your money. Know your income, and what you need to pay for (bills, food, travel, etc.) and see where money is left or could be budgeted better. The 50-30-20 rule is a good budget (50% on needs, 30% on wants, and 20% on savings or debt).
- Prioritize debt: Repaying debt is far more important than luxury spending. While you can still enjoy things, cutting money back on unnecessary expenses and putting the money into repayments is key.
- Speak to a professional: Speaking to a financial advisor may be the way to go if you’re particularly struggling to manage and repay your debts.
- Utilize your network: You may find that there are opportunities for you to save on some of your costs, like medical insurance (which employee benefits schemes from your employer may offer) and more through utilizing your work and existing network and contacts, including friends and family who may be able to help you
Summing up
Generally, planning ahead and organizing your finances is the best way to ensure you avoid future debt. While it might seem difficult now, there is a way for Americans today to get their finances back on track.