More United States citizens are getting into debt in the modern era than any other time in history. Over the last ten years, the amount of public debt has continued to rise, with the figure for total consumer debt reaching over $14 trillion in 2020. This means that on average, each household in the United States owes around $137,000.
It’s a staggering statistic, but one that makes sense when you think for just a second on how this may happen. Now more than ever, there are so many different ways for people to incur debt, even if they’re living somewhat responsibly. Even what’s considered to be beneficial practices, such as studying, healthcare, and buying a house, can all incur debt that may linger for a lifetime, making it an almost unavoidable constant in most American people’s lives.
Knowing all the various different ways individuals can get into debt can hopefully help you make smart decisions on how to keep on top of your finances and maintain a healthy budget and, perhaps more importantly, your credit score.
Credit Card Debt
Mismanaging credit cards is one of the easiest ways for Americans to get themselves into financial trouble due to the nature of how credit cards work. For a lot of people, these cards can be appealing at first due to their low initial interest rate as well as other perks such as air miles and cashback but can quickly lead you down a rabbit hole of debt. This is because once your limits are close to being reached, a lot of cards increase this limit to keep you spending. It makes it harder for you to get out of debt as well as increasing the total amount your raking up.
Another issue a lot of Americans have with credit cards is that most households rarely only have one card, with the majority favoring 3 or 4. This obviously makes things really difficult to manage, and when things start going wrong financially, it can easily overwhelm. A staggering 41.2% of all households carry some sort of credit card debt, with the average household debt being $5,700 for their credit cards alone.
In recent years more young Americans have been going to University or college to study further education than years prior, with a record percentage of uptake seen in 2018. Unfortunately, for those individuals who haven’t gotten a scholarship, studying is expensive and includes many different fees that will cause some sort of debt. This means that more young people than ever are being faced with debt at an earlier age, and are incurring this in a position of their life where they may not be their most financially responsible and are perhaps unable to begin paying it off, meaning that interest is added on.
Student debt is an issue that’s affecting a huge portion of the population, with 43 million Americans over 18 years old carrying some form of student loan – that’s roughly one-sixth of the total adult population.
In order to help students recover and recoup some of the financial debt they’re in, there are now plenty of supportive resources for lawsuit regarding student debt and debt relief that aims to aid these recently graduated students.
Despite most Americans having some form of medical insurance, for a lot of individuals, this insurance isn’t enough and may not cover some of the most vital treatments that you might need. This underinsurance means that around 79 million Americans may have problems with their medical bills, which can be an additional source of debt.
A lot of people find themselves underinsured due to the rising cost of medical care, meaning that a lot of Americans opt for cheaper deals to try and save themselves money, and it looks like The Affordable Care Act hasn’t done much to help this. Although more Americans are under a healthcare plan, with around 91% of the population insured, Americans are still paying around the region of $3.3 trillion, or $10,500 per person. This is an increase of nearly 20% in only a five-year timespan, demonstrating how medical debt can and is affecting so many people.
Although there are a lot of ways individuals can be manipulated into getting into debt, there are also scenarios where it’s self-inflicted. The most common way this happens is through poor budgeting habits and practices, which can lead to you not being able to keep up and track your finances.
The best way to help improve your budgeting habits is to start saving each month by putting a little bit away. Whenever an issue occurs in your life, and an expense needs to be paid, you’ll have money in reserve to help deal with it, rather than using credit and adding to your debt. Budgeting also helps you identify problem areas in your spending, making it clearer to see where you can save money and also make sure you don’t go into overdraft, which can help you save on paying those fees.
A lot of individuals who are currently struggling with debt, turn to loan companies to provide them instant cash to pay off their debts and help balance their books. The problem is that after doing this, the individual now owes that loan company money, usually at a ridiculously high interest rate, which in a lot of cases, put people in even further debt.
They can help in a pinch, but be sure to understand those loan companies need to be paid back, and usually demand a huge fee that’s astronomically greater than the amount you borrowed. The majority pray on the already financially vulnerable, so do be wary and do your research before using one.
Spending Unearned Money
One of the worst practices people can get into, which drastically increases their chances of getting into debt, is spending money that is not yet earned. This is because although payment is pending, and you know it’s coming, you’re still, at that point in time, using money that isn’t yet there, meaning you may have to borrow.
What then usually happens is that instead of paying off this borrowed amount when the previously spent money does come in, you’ll find that you’ll need to use this money on more important things, meaning that suddenly you’ve spent this money twice. It’s always best to hold off, not count your chickens before they hatch, and wait until the money is physically in your account to avoid this common pitfall.