People come into our office all the time with debt. It’s kinda what we do. If you’re here and you’re not in debt or seeking a divorce, chances are, we won’t be able to do much for you. Over time, this has given us perspective on what actually causes debt. Below are the top five causes of debt.
1. An unexpected emergency
Many people find themselves in debt because they aren’t prepared when something bad happens. Your entire HVAC system may go belly up and need significant repairs. You may crash your car or get really sick only to find your insurance doesn’t cover everything. To keep these scenarios from wiping out your savings and leading to debt, you once again need to boost your emergency fund.
2. College costs
Going to college is expensive. So many people find themselves saddled with debt from college and often in the early part of their lives. This makes getting ahead and acquiring those assets that help build wealth even harder than before. The average class of 2016 graduate left school with $37,172 in student loan debt. Those student loans can force a new graduate into even more borrowing just to cover basic necessities, which only furthers the downward spiral into debt.
3. Loss of income
Losing your primary means of generating income can really hurt you. You might have been laid off or maybe you did something stupid and got yourself fired. Maybe you’re self employed and had a sudden decline in revenue for your business. Maybe you had to stop working to care for loved one. Perhaps your health took a turn for the worse and you were forced to retire early or significantly reduce your hours. When horrible things like this happen, it’s easy to find yourself overwhelmed and debt can quickly follow.
4. Being poorly insured
Insurance is one of the most vexing things about life. It frequently feels like a waste of money … until you need it. Many people find themselves in very serious debt when a bad event hits and they aren’t properly insured. Imagine your house burning down without homeowners insurance or wrecking your car with a liability only policy. All of these things can lead to serious financial consequences.
5. Keeping up with the Joneses
People are always looking next door and seeing what the neighbors are doing, yours truly included. Maybe Todd across the street is putting in a pool or your college roommate is sharing photos of their latest European vacation. Maybe your obnoxious sister-in-law just closed on a house twice the size of yours. Life really feels unfair when you feel like you have to go without and like many people, you may feel pressure to “keep up” with those you perceive to have it better than you.
DON’T DO IT THOUGH, THIS IS A RECIPE FOR DISASTER.
Chasing a lifestyle your income won’t support will have you turning to credit cards and other consumer debt to fund frivolous buys. The spiral into debt can be quick, overwhelming and unforgiving. The average millionaire drives a Honda, Ford or Toyota, and lives in a normal house in a middle class neighborhood. No one is saying you shouldn’t treat yourself to nice things or go on vacation every once in a while; but if you can’t actually afford those things you’re hurting yourself in the long run.
If you’ve found yourself drowning in debt, whether it’s one of these causes of debt or not, reach out to the experienced and compassionate lawyers at Harmon and Gorove for a free consultation today. We have decades of experience helping people get their finances back on track and and creating lasting prosperity for our clients.