AT A “STAGGERING” LEVEL
by Contributor
(Jul. 8, 2020) — In the modern world, debt is almost virtually unavoidable, with many everyday and regular activities providing the potential for an individual to incur some form of debt. Even the most careful of spender will probably find themselves with a credit card, student, or medical debt, with the majority of people struggling with all three.
Nationwide, the total for consumer debt sits at a staggering $14 trillion and is continually rising, meaning that, on average, each American household owes just under $150,000.
Debt can have a crippling effect on a person’s life and wellbeing. The pressure of it all can cause mental health issues for many people, not to mention financial issues for the future as it can lower credit scores. It makes it difficult to buy a house and even get on the renters market. Many people are questioning how it has come to this, but after reading this article, it will become quite clear how people easily fall into debt, as well as the many ramifications of this potent problem.
Common Causes of Debt
People can get into debt for many different reasons, with some being self-inflicted, while others are more situational, but they’re all as equally unfortunate. Some of the key causes include:
- Credit Card Debt
Credit cards are one of the easiest ways to incur debut, especially when they’re mismanaged. Most Americans are initially attracted to credit cards due to the perks and benefits they provide, such as cashback and low interest rates. However, they can turn quite dangerous when you near its limit, as a lot of credit cards offer to increase your limit to encourage you to keep spending, which gets you deeper in debt and harder to get out of it.
Furthermore, most American households have 3-4 credit cards, making it even harder to keeps tabs of and manage their money effectively. 41% of all households carry a form of credit card debt, making it one of the most common forms of debt, with each household averaging $5,700 they need to pay back.
- Student Debt
There are more young Americans than ever going to university or college, meaning that more young people than before are getting into debt, and crucially they’re getting into debt at a young age. Studying higher education in America is expensive, with the majority of students needing a loan to afford it. Due to this, around one in six people over the age of 18 carry some form of student loan.
- Medical Debt
Since the Affordable Care Act, better known as ‘Obamacare,’ came into practice, the majority of the US population has some sort of health insurance, with over 91% of people being covered in some way. The problem is that medical care has been getting more and more expensive, forcing individuals to go for cheaper healthcare plans that underinsure them and fail to protect them from some of the more vital health issues.
It means that around 79 million Americans have problems with their medical bills, which can seriously add to a person’s debt.
- Budgeting Issues
A lot of the time, getting into debt can be self-inflicted, with the main reason for this being various budgeting issues. A lot of people in debt have poor habits and practices that need to be addressed to help them recover their debt as well as to stop them from racking up more.
Most of the time, budgeting issues begin when a person fails to save. Instead, they are caught out by spending all their income, even if they don’t necessarily need to. Putting funds away each month can help pay off any current debts, or having this money in reserve can be useful when an unexpected expense comes up.
- Loan Repayments
When already dealing with debt, a vast number of people turn to payday loan companies to give them an instant cash injection to help pay off what they owe. Doing this can be an easy way to get into further debt, as these loan companies usually have huge interest rates that suddenly means you’re required to pay back an extortionate amount more money than what you borrowed in the first place.
Payday loans can help, but it’s important to spend time researching different companies to be sure that their repayment plan is affordable and suits you.
Ways Debt Can Affect You
- Credit Score
Being in debt can seriously affect your credit score in a negative way, which can stop you from obtaining things such as credit cards and loans, which can seriously disadvantage you. A low credit rating can also prevent you from buying a home, due to you being less likely to get a mortgage, and if the debt is huge, it can lower your credit score so severely that it can make it difficult even to rent an apartment. This is why debt can be so debilitating; it can devastate a person’s future prospects. If you’re worried about your credit rating, take a test, and then alter your habits accordingly to boost it.
- Mental Wellbeing
Debt can be an extremely stressful thing to deal with, and this stress can impact someone’s health in a multitude of different ways. For example, this stress can cause sleepless nights and even insomnia, which can affect how your brain functions day to day. The physical effects of stress also raise your blood pressure, which could make you more susceptible to some major heart issues, not to mention the more pressing mental effects such as depression and anxiety.
- Relationships
Due to the mental effects debt can have on people, it can negatively alter people’s personal and interpersonal relationships. One in four people who have experienced debt say that it had an impact on their relationships, routinely causing arguments, decreasing communication, and increasing mistrust between a pair. For a lot of people, debt and its effects can be a leading cause of separation between couples.
Tips to Get Out of Debt
There are plenty of tips that people can implement to help them out of debt and hopefully alleviate some of these effects. Here are three of the most effective, combative techniques that can get you out of debt quicker, but you can also get legal advice if you want additional help to manage your finances or if your seeking help or assistance with debt lawsuits.
- Pay More Than Your Minimum
When you only pay the minimum you have to pay back for credit cards or overdrafts; it makes it almost impossible to pay off the whole debt promptly, meaning that you have it hanging over your head for longer. Paying over the minimum, even if it’s by a small amount, can really help get through the debt quicker. It’s vital that you don’t overpay, though, and make sure you only pay what you can afford. You can use an online financial calculator to help you figure out your budget and how much is expendable, which can be used for these overpayments.
- Avalanche Technique
This technique works by paying off your most expensive debt with the highest interest rate first. You do this by paying the minimum for all your other debts but pay more for the worst one. Once it’s paid off, you then use the money you were using to pay off the next biggest debt and continue this routine until, eventually, your debt free. This is helpful as it eliminates your biggest burden early and can be really motivating as you can feel the effects of your efforts over time.
- Snowball Technique
This technique is the opposite of the avalanche, but equally as effective, where you instead pay off your smallest debt first. This allows you to gain momentum as you keep knocking off each balance, making things more manageable at a quicker pace.