Almost every American has had to face debt in several moments of their lives. It's one of the most common issues that challenge their personal finances. But, what most of them don't know is how to avoid debt!
Debts are practically the most common problem Americans face in their lives. There are plenty of reasons that trigger debt, which is simply spending more money than you earn.
Unexpected events, a poorly planned budget or purchasing out of your league are between the main reasons why Americans end up with plenty of debt in their balances.
However, if you manage to identify and understand the causes of debt, you will be better prepared to take financial decisions in your life. Here are some of the most common causes and how you can avoid new debt.
- Medical expenses: This is the top-of-the-list cause of debt and bankruptcy in the US. Health conditions can lead to huge bills, even if you have health insurance. Although you can't predict when your health might change, you can avoid huge medical debts by taking some preventive measures: getting health insurance and start an emergency fund.
- Loss of income: Losing your job and, therefore, your main source of income, can also lead to debt. At first, it probably will be hard to handle bills and expenses, and it's pretty common to end up expanding your debt. The best idea to weather this heavy moment is to have an emergency fund. This way, you will count on some money to avoid debt.
- College: It's one of the most common reasons for debt, and it's the first type of debt many people face in their young adulthood. The debt cycle here begins with a student loan, and can even continue (and deepen) after graduating. There are a few ways to avoid this, like working while you are in school or going to a cheaper university.
- Divorce: A marriage that comes to an end can also lead to a financial disaster. After filing for a divorce, both members of the former couple will have to continue their lives without two combined incomes. If they have kids, probably one of the parents will also have to face child support or alimony payments. So, it's not that crazy to highlight divorce as another reason for debt. There are not many things that can help you avoid this debt, but you can try to lower costs by keeping amicable divorce proceedings and avoiding court.
- Gambling: Having gambling issues can lead to severe debt and damage personal and family finances. The best way to avoid facing financial risks due to this addiction is to treat the disorder, even if it means taking medication.