The Top 5 Money-Eating Situations the Financially Savvy Should Prepare For
You probably know personal debt is a serious problem for many people in the United States. But have you ever wondered how so many people get into debt to begin with?
The average American holds a credit card balance of $6,375. Debt can lead you to disastrous consequences and it can consume your assets. While it may seem like debt piled up overnight, it’s usually the result of small decisions made over time. Although there are many effective debt elimination programs like debt consolidation, it is important to be aware of the causes that lead to financial hardship.
New Era Debt Solutions highlights the top 5 reasons debt happens:
1. Losing Your Job
Getting laid off at work can impact your financial stability, especially if there was no time to plan for it. Although you may get to collect unemployment from the state, it usually isn’t enough. If you have more financial obligations than income, debt can become a serious reality. In this situation, it is important to understand the change of income and to create a budget.
If you find yourself unemployed or simply spending more than you make, get a side gig. Make sure you don’t get comfortable relying on unemployment in case it runs out before you find a job.
2. No Savings
Having a solid savings account is vital in order to pay for unanticipated expenses. When you don’t have money set aside an emergency expense, you could be sent right into debt. Many financial planners recommend that you save 10%-15% of your income. Unfortunately, this is not always a priority when money is tight.
If you do not have the cash for an emergency medical bill or car repair, you will be forced to put it on your credit card. With a huge credit card bill, saving money becomes even harder; this begins the snowball effect sending you on a long journey of debt.
3. Expanding Your Family
When you are single or even married, you may feel like you have plenty of money to live on but once you have kids, that mindset quickly changes. American parents spend an average of $233,610 on child costs from birth until the age of 17, not including college tuition. This number covers everything from housing to transportation to food costs. The sum may seem enormous when you first see it, but it’s actually the result of very normal costs that add up over time.
In some cases, families may have to forego one income, while one parent stays home with the kids. This makes staying on top of your finances even more difficult.
4. Not Having Insurance
Not having insurance is a threat to the financial health of individuals and businesses. Without health insurance, it is harder to stay afloat when an emergency happens. A business may suffer significant financial losses during a lawsuit if the company doesn’t have liability insurance.
You may think you are saving money by staying healthy and not purchasing health insurance. This may be true, except you will end up paying money to the government during tax time anyway. If you could afford health insurance in 2018 but did not purchase coverage, you will likely have to pay a penalty amounting to either 2.5 percent of your yearly household income or $695 per person ($347.50 per child under 18) or whichever is greater. Either way, you are spending money. But by getting insurance, you are protected if an emergency happens.
If you own a small business, you may be more concerned about getting people in the door than paying for business insurance. However, some things are out of your control. A visitor could get injured on your property or a fire could destroy the office and all of the equipment inside. Frivolous lawsuits are almost inevitable in this country; even a dismissed lawsuit can cost you up to $5,000 in legal fees. Having insurance in general is a safety net from debt.
5. Lack of Financial Knowledge
All of the reasons above boil down to one thing: you spend more money than you make. Most people do not take the time to track their income and expenses. Sitting down and crunching numbers may not sound like the most exciting task in the world but it is essential in knowing how much you really spend. Credit cards and loans make you feel like you have more money than you do, so make sure to educate yourself on the interest rates associated with these options.
6. High Interest Charges
Many credit card accounts have interest rates attached to them. When an interest rate is high, it can make it impossible to repay your debt. The best thing to do until you have your payments under control is to avoid the use of credit cards altogether. You may have to use them for emergencies but using cash can be a better gauge that helps you track how much you are actually spending.
7. Life Necessities
Having a mortgage, car loan, or student loan or debts can comprise the majority of your monthly expenses. While home ownership is rewarding, it can be the source of a lot of stress if not handled correctly. A car is necessary for transporting you and your family, although a car payment and insurance definitely add to your burden. Not to mention the number of college graduates that default on their student loans increases every year. Getting an education is important, but many people cannot find employment after graduation and are forced to work odd jobs so they can make ends meet.
New Era Debt Solutions has settled more than $250,000,000 dollars of debt since 1999 and wants you to be our next success story. If you need assistance achieving financial freedom, contact one of our friendly counselors at New Era Debt Solutions to learn more about finding the debt relief option that best fits your needs and budget. Our counselors are with you every step of the way.