Along with today’s increase in the rate of unemployment comes the growing number of people slowly falling into credit card debt. If not handled properly, this debt can lead to disastrous consequences, which can affect a person’s life not only financially but also mentally and emotionally.
Several factors cause people to fall into debt. But most do because they are not aware of the causes behind it. Although there are several debt elimination programs proven to be effective in settling debt, it is always best to learn about the causes that often lead to substantial financial problems in the long run.
To help you avoid getting consumed by such huge burdens, here are the most common reasons people get themselves trapped in debt.
1. Low income, high expenses
It is quite normal for your expenses to be sometimes higher than your income, but the key word here is “sometimes.” You have to manage your expenses, and by manage, we mean budget in a way that you only “live within your means,” as the popular saying goes.
Your expenses should only exceed your income in cases of emergency, which is what your emergency fund is for. If you fail to stick to your budget, you will see yourself swiping your credit card more often than you are supposed to. This, in turn, will accumulate in the long run and cause you to incur huge amounts of debt.
2. Marital problems
Statistics show that about half of couples who get married end up getting a divorce. And most of time, this causes a strain in their finances. Government law dictates the amount of money that should be settled during a divorce. But when one of the former partners demands too much, then the other partner will have no other choice but to go into debt to cover the amount of money as part of the agreement.
3. Paying only minimums
Making only minimum payments every month is one of the most common reasons people fall further down into credit card debt. Take note that if you do this, you only get to cover the cost of the interest. So, it means that the principal balance for your home loan in Utah County, for example, will not go down with every payment that you make.
It will take you many years before you can pay off everything that you owe. Paying your credit card for more than 10 years is not an excellent financial decision. So, it is best to pay as much as you can that it will cover your principal balance.
This is among the common forms of entertainment that many Americans enjoy in their spare time. However, it is also one of the reasons many of them are trapped in loans. As loans become readily available for people who want it, the idea of winning in gambling becomes addicting. The truth is that people who get addicted to gambling often spirals down to debt as they try to gain everything that they have lost.
5. Barely any savings
If you want to avoid any unnecessary debt, you need to prepare for anything. So, try your best to beef up your savings as often as you can. If you have a decent savings stash in your account, you will have access to money if ever you need it.
If you want to avoid any of these debt traps, make sure that you know how to manage your money properly. Seek professional advice if you need to.