What are the major sources of consumer debt? Whether you own a business or are simply curious about the current state of debt in America, let’s take a closer look at the top 10 reasons people go into debt (Note that we did not include mortgages or car payments, which are two major debt sources as well):
#1 Loss of a Job
Even with unemployment compensating up to 60% of a salary, the remaining amount might need to come out of savings. If lifestyles aren’t adjusted immediately after a job loss, savings quickly deplete.
#2 Divorce / Separation
For the roughly 45% of Americans that end up in the middle of a divorce, it is a surefire way to eat through precious savings. The deepest cut may come from separating 401Ks and buying out an ex-spouse. Also, attorney fees require deep pockets.
#3 Poor Money Management
For those who judge their wealth by how much money they have in the bank right now, poor money management can become a deadly undertow. Dining out is a main culprit for many.
For some families, seasonal or part-time work ends up driving them deep into debt. These jobs might seem stable, until hours are unexpectedly cut, creating hardship for families.
#5 Gambling / Betting
A silent killer, online gambling is equally detrimental to hitting the slot machines at a local casino. Casinos are designed to make money, and they do so by allowing advances on credit cards plus many other sneaky “fast cash” tricks.
#6 Medical Expenses
While going to the doctor is often covered by insurance companies, for some, the cost of medications, copays, or a surgery can add up to big debt. Luckily, medical debt can’t be listed on a credit report…but it can still be turned over to a debt collections agency.
#7 Lack of Insurance
Are you fully insured? Those who find themselves deep in debt often lack crucial insurance that should have covered them in the case of a catastrophe – renter’s insurance for fires, flood addendums for water damage, etc.
#8 Taxes vs. Write-offs
If you’ve been avoiding Uncle Sam, watch out. Taxes are another top 10 cause of debt. These fees, however, would typically be collected via a government-contracted debt collection agency.
#9 End of Year Inflation
You may notice that the cost of living regularly increases for certain services like medical insurance, or food and beverages. When a budget doesn’t account for these additional costs, it can end up slowly creating debt. Budgets are spent on the necessities, while that plastic surgery bill gets ignored.
#10 Misunderstanding Interest Rates
While most aspects of financing are easy to misunderstand, interest rates can drastically increase payments, too. And when your contract said, “0% financing for one year…” they meant one year.