The amount of debt owed by consumers in the United States is well over three trillion dollars and still counting.
Most of the debt accumulated by people her is mostly based on unexpected circumstances they were not prepared for. Rising interest on loans, a divorce, getting laid-off, a horrific accident and many more unanticipated circumstances can leave a person in financial turmoil. Let us tackle the most common reasons why people and up in debt
1. Student loans
Student loans are the number one cause of debt in the United States. One in four of the country’ population owes student loans. Though there are many factors involved, the matter is largely owed to borrowers using private institutions for student loans, which are highly volatile in nature The interest rates are prone to changes in the life cycle of their debt, this exposes debtors to another risk factor to keep up with installments once they join the workforce. Private loans, unlike federal loans, tend to require that the borrower start paying back the money before they even get a means of income.
2. Medical costs
Debt can really make you sick. Not just metaphorically, but in a literal sense. This is due to the mental and physical drain that comes with suffering from financial stress.
Most people don’t plan ahead by saving or anticipating worsening health problems and unexpected medical emergencies. A good quality of health is a necessity that doesn’t take second place in the hierarchy of priorities which rely on the paychecks of the average person. This forces most people into taking on debt due to paying their bills through credit Medical costs are very expensive in the United States. A problem in locating the reason why 20% of US GOP goes to medical costs is perplexing. It is not much so in having people who frequently use medicine or use health care services, but more so a problem with the costly pricing and harsh policies imposed on how patients pay for the healthcare. The average American pays twice more for medical care services and utilities than other countries.
3. Auto loans
People’ cars are driving them into debt. Besides the cost it takes to maintain a car and put fuel in the tank on a regular basis, it is how the cars are acquired in the first place that creates debt. Cars are among the most expensive possessions consumers can buy in their lifetime. The high price that the auto industry is asking for can be too much for the average consumer, the payment mostly has to be settled by means of an auto loan from a bank. This automatically makes the payment a non-resolving debt. Non-resolving debts require the borrower to pay the debt inconsistent monthly installments or face penalties. If you don’t pay on time, interest accrues.
Failing to keep up with the monthly payments for an extended amount of time puts you at a risk of the car getting repossessed by the bank or institution behind the auto loan. The flexibility within this arrangement is minimal, so minimal it is unlikely a borrower will get another credit line without applying for another loan.
Auto loan payers resort to taking on other loans to refinance their current loans to avoid repossession and arrears, thus adding to more debt.