How People Get Into Unsustainable Debt
Written by Kasey Ng   


Today, the average American has over $10,000 credit card debt. Each individual has different ways to get into unsustainable debt, but there are large group of people found themselves into debt burdens under some common situations. This article aims to help you recognize some common ways that people get themselves into unsustainable debt. If it sounds familiar, we strongly urge you to look more strongly into your finances.

Unemployment
This is fairly straightforward. If you recently lost your job, you just lost your main stream of income. Even so, many people find it hard to lower their expenses by adjusting their lifestyle. Instead, they use their credit cards to finance their living expenses, which becomes a problem because they can only afford the minimum balance. As a result, they get into very large debts and can’t pay them off.

Medical problems
Illnesses and unexpected medical emergencies can result in mass amounts of medical debt very quickly. While there is no way to avoid such expenses, you can help to prepare yourself for life’s curveballs by having a healthier lifestyle and maintaining an emergency savings. Read our section on managing unexpected debt for more info on how to financially handle medical and other emergencies.

Poor money management
It is essential to develop a monthly budget, and to stick to it. Without one, you have no idea where your money is going. However, many people are not willing to create a budget or find it difficult to spend accordingly. With poor money management, it is very easy for people to get into unsustainable debt because they have no idea how much they spend each month, and overspend as a result.

Divorce
Divorce is one of the few life changing events that can directly affect your finance. If the income source is from one person in the family, divorce will have a severe, adverse impact on the person who isn’t working.

Not saving
Saving even a minimal amount each month will allow you to build up an emergency fund that can help to protect against any unexpected costs, or against a loss of income, in the future. Without any saving, people will find themselves in a vulnerable position in unexpected situations.

Failed business
It is an unfortunate fact that many start-up businesses fail, and when they do the results can be financially devastating for the business owner. It is true particularly for small businesses, as business owners are personally liable for debts incurred on behalf of their businesses.  Read more about this topic here.

Of course there are other ways to get into huge debt, but above are just some of the most common scenarios on how people find themselves into unsustainable debt. Just keep these in mind and try to avoid them in the future.



 
Last Updated on Friday, 24 December 2010 06:14