Debt problems seem to be a constant companion in life for most people. It comes in various shapes and forms and most especially, amount. Debt, in itself, is not a negative development. In fact, it even helps consumers in enabling them to reach their goals in life. The problem starts when repayment is compromised because of other factors in life.
One of the biggest news to come out in the past few days was Puerto Rico and how it filed for bankruptcy. CNN.com shared that it owes creditors $70 billion including some bonds with Wall Street firms. If they can experience debt problems to the point of filing for bankruptcy, what more for consumers?
Debt, when left alone to grow can lead to bankruptcy which can then spiral down to unmanageable financial problems. According to a survey shared by NIH.gov, medical debts account for about 62% of bankruptcy filings in 2007. This means that a lot of people, both with and without health insurance still feels the financial sting of getting sick.
This is usually and should be the last resort for consumers. Bankruptcy might be a tempting option since there is a chance that your debts will be dissolved. However, you need to understand that this stays on your record for about ten years. Though it remains a valid option, remember that there are other repayment strategies such as debt consolidation or debt settlement you can consider.
If you are wondering what the top debt problems are for American consumers, here are some of them in no particular order.
Accruing medical debt
As earlier mentioned, medical debt is one of the leading debt problems of consumers. NPR.org even shares that a survey showed how health care expenses negatively affected the finances of 26% of consumers. This is not simply a case of not having health coverage because this affects even those with health insurance.
This is because there are a lot of factors that comes into play when you talk about health coverage. There are deductibles you need to pay out and is usually a higher amount when you are paying a low monthly premium. There are coinsurance and copay programs that typically share the cost of the bill with you. At the end of the day, you still need to put out some out-of-pocket expenses for medical cost and this is where most consumers are having problems with.
The best thing to do is to understand your health coverage fully. You also need to properly match your present situation with the plan you will get. It is also a good idea to consider your budget and what you can pay out monthly. All these factors give you the big picture and how you can prepare for medical needs.
Reduction in income
One of the reasons why people fall behind in their payments is because they simply do not have enough income to cover expenses. More than overspending, there are people who are having to live with reduced income. This can be an effect of a company’s tight budget where they have to pull out some benefits or even overtime pay.
To be able to adapt to this situation and prevent debt problems from further complicating the situation, it is best to start lowering expenses. At least until you get to bring your income back to comfortable levels. You can also try looking for side hustles to complement and add on to your monthly income.
Gallup.com shares that unemployment is at 8.9% meaning there are a good number of consumers who does not have a regular stream of income. This is much worse than simply having a reduction in your monthly pay. Without any regular income, you would find it hard to commit to a regular debt payment.
Your reserve funds would be your best bet in weathering this financial problem. This is why it important to save while you can because when the times comes that you need it, it would be difficult to adjust. Save a few dollars a week and you would be surprised how much you have at the end of the year.
Credit card debt
There are credit card habits that lead to financial problems and one of them is using it to finance an excessive lifestyle. The problem starts when you are unable to meet your repayments due to high balances and low income. Fees, penalties, and other charges would start to pile up increasing the original amount due.
This is one of the debt problems that seem to plague a lot of consumers. You can look at a lot of repayment strategies specifically a debt consolidation loan. The idea is to combine multiple credit card debt under one account making repayment more manageable. However, you are simply treating the symptom and not the problem if you do not change your ways. As critical as it is to meet your payments, it is just as important to change your lifestyle to prevent digging yourself back into the same financial hole.
Divorce cases is one of the debt problems people face
Divorce is never easy on anyone but sadly, it is a necessity for some couples. There are a lot of reasons why people decide to go their separate ways. However, one of the most common is not being able to manage marital finances properly. There are couples who can’t seem to agree on how they should manage their finances once they live under one roof.
This is why it is important to have money talks even before you get married. Of course, you do not ask about finances on the first date. However, as the relationship progresses, you need to have adult discussions about money. This way, you can move forward and be on the same page with your finances when you get married.
Millennials know these two words quite well as they are carrying some of the highest ever-recorded average balances on student loans. According to USAToday.com, the 2016 average was about $37,000. That is a heavy burden for any fresh college graduate to put on their shoulders.
Debt problems like this are not easy to manage but that does not mean it is difficult to pay off. If you are the one with student loan payments, you can look into debt consolidation. This can help organize your payments and might even lower down your monthly payment. A low payment can free up some funds in what could understandably be a tight one when you are coming straight out of college.
If you are worried about the college expenses for your children, it pays to plan ahead and start saving up for it as early as possible. There are a lot of options for this and one of the most popular would be the 529 plan. This is a tax-advantaged savings plan for your children which they can use when they go to college.
There are a lot of debt problems that can come along your way and how you react to it can define how you get out of it. You need to understand though that your ability to react to financial challenges will also depend largely on how much you know about financial management. With this in mind, you need to find time to understand and learn as much as you can about your finances. The more you know, the better you will be able to handle financial challenges.