4 Reasons Americans are Facing so much Personal Debt

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Part of the reason many Americans with debt feel ashamed of their financial situation is because many people assume voluntary overspending is always the root cause. While this is the case for a certain percentage of people, there’s a myriad of other valid reasons why someone would owe money. And, until we start talking about all the possible contributors to debt, people will continue to feel they need to hide their debt and experience extreme guilt for circumstances often outside their control.

Here are four reasons — besides overspending —Americans in general are facing so much personal debt these days.

Rising Costs of Living

Many Americans have found themselves sinking into debt simply to stay afloat — using credit cards and personal loans to pay for essentials like housing, food and transportation.

It will come as no surprise to people living paycheck to paycheck that the cost of living has risen significantly over the past two decades while average incomes have stayed largely the same.

Case in point: The average household income in 1999 was $42,000. Adjusted for inflation, it should now be closer to $65,000. But in 2018, the average household income was just $61,227 — or five percent lower than it would need to be to keep pace with inflation. The dollar is simply less elastic these days, causing many to take on debt to cover the cost of living. 

Unpredictable Hardships

Unless you can foretell the future, it’s tough to predict exactly when your car will break down, your job will lay you off, someone in your family will need to visit the ER or your marriage will end. Fingers crossed you’re able to avoid these catastrophes, of course. But chances are you’ll experience at least one situation that threatens your finances in the future.

Reading through Freedom Debt Relief reviews, you’ll notice many debt relief enrollees have cited one or more unexpected hardships as a reason for falling behind on bills and needing to seek settlement. It can happen to the best of us. Your best line of defense is bulking up your emergency fund, while the second-best option is addressing your debt proactively after accumulating it.

Costly Medical Bills

Ever experience financial anxiety after receiving a medical bill? You’re far from alone. As CNBC reports, over 137 million Americans faced financial hardship in 2019 due to medical costs. In fact, exorbitant healthcare costs are the number one reason people may feel the need to drain their retirement accounts or file for bankruptcy. Americans with and without insurance can find themselves on the receiving end of medical bills they’re unsure how to pay.

Before putting a steep medical bill on a credit card, try negotiating your debts with your provider. Double-check every statement for accuracy so as to avoid any unnecessary charges. You may be able to set up a payment plan over time. Prioritize building up your emergency fund so you have at least some funds on hand in case of a medical emergency.

Ease of Using Credit

Most of us have found our mailboxes flooded with credit card offers — many practically screaming that we’ve been pre-approved. Relax, the hard part is over! All you have to do is provide a couple personal details and sign on the dotted line! Right? Well, the ease of obtaining credit — while certainly convenient — can start or exacerbate the debt cycle.

Think carefully before taking on any new credit. Think twice before taking out the “easiest” loan, which could turn out to have sky-high interest rates. If it’s too tempting to swipe plastic on purchases, consider going on a “cash diet” or using a debit card instead.

Americans are facing so much personal debt for reasons well beyond simple overspending. But understanding the causes can help you prepare for the future and avoid common debt pitfalls.