April 16, 2012

5 Reasons People Get Into Debt

People who get into debt are not always over excessive and untamed consume spenders that cannot bridle their appetites for consumer goods, though there are some consumers who may fit such a description. However, the downturn in the economy, as well as the economic crisis throughout the western hemisphere, has caused a deficiency in income, and many who were once paying their bills and maintaining monthly house payments, are caught in the crunch. They have found themselves losing control of their finances, ending up with huge debt. Below, five of the most likely reasons for getting into debt are listed to help you increase your awareness of your finances, so that you may avoid the debt triangle.

1. Unemployment – one of the major debt aggregates is the loss of your job. Your unemployment benefits, which can be anywhere from twenty-five to thirty-five percent of your last monthly check, depending upon the state you are living in, are much lower than your weekly or monthly salary. If a portion of your paycheck has not gone into the bank for savings, juggling to keep your present standard of living will start automatically, and could kick you into the debt chain.

2. Unanticipated medical expenses - No one knows when a serious illness will occur. They come unannounced, and doctor bills, medicine, and surgery are costly. Private nursing care may also be necessary. Such costs rise above your savings, and sometimes fall outside of your insurance plan, and can throw you into a second mortgage or excess use of credit cards, which can result in increased debt.

3. Company restructuring – The business world is competitive and companies want to stay ahead of one another. Therefore, they develop visions and incorporate plans and processes for the future, which more than likely mean closing down branches or subsidiaries. Different from being laid off with the chance of being rehired, the company does not exist anymore. In addition, companies are steadily moving a lot of their business to countries with cheaper wage and salary scales, and the chances of finding a new job quickly could be bleak. The loss of income throws you into doing things you would not normally do to compensate your financial loss.

4. Credit Cards – Having one credit card and paying it off at the end of each month is great. Your interest rates are practically zero. However, possessing four to five credit cards can manipulate you into a serious problem of indebtedness. This problem occurs when your budget is not adjusted to your bring home pay or real income. The temptation to keep spending as you once did, without looking at the seriousness of your situation, so that you can make the needed adjustments, will cause you to fall into the spiral of indebtedness.

5. Educational expenses – Finally, one of the least looked at debt aggregators, which can perpetuate high debt within weeks, is the educational expenses of those who are attending a college or university. Tuition, dormitory costs or external lodging in a shared apartment, and the cost of books are high. Today, it is not unusual for college or university cost to start at sixteen thousand dollars per year, and the cost at some universities has risen as high as sixty thousand dollars per year. The fact is many young people graduate with their diplomas in one hand and debt in the other.

So, please become aware of the reasons, which initiate the spiral of indebtedness that tends to weave havoc in people's lives. It may prevent you from falling into its trap.

Liza is a financial blogger as well as a contributing writer for a mortgage refinancing company.
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