Common Causes of Debt Problems
Just what are the common causes of debt problems for most Australians. Here is a list of major circumstances that could put you deeply in debt and be the source of your debt problem.
When one or more of these happens, it can be overwhelming. If you plan for the unexpected, you will be in a much better financial situation.
- Living Beyond Your Means
- Losing Your Job
- Divorce
- Health or Medical Emergency Expenses
- Home or Car Emergency Expenses
Living Beyond Your Means
If you do not keep track of what you are spending, it is easy for your expenses to exceed your income leading to your very own debt problem.
Even a small shortfall over a long time will cause cash flow problems and ultimately lead to financial crisis and a debt problem.
Saving regularly, even a little at a time, will give you that cushion you can rely on when something unexpected happens. Your savings will give you more flexibility in life choices and a financial cushion that you may need if something goes wrong.
Losing Your Job
Losing your job is a stressful experience, and accumulating debt problem as a result can compound that stress even further. Most financial advisors counsel to have at least three months of your net pay saved and readily available to avoid debt problems.
Don’t pay your bills late or incur further late payment fees which will only compound your debt problem. If you can’t pay your bills in full, phone your creditors before you get in arrears and explain the situation. Organise a payment plan that enables you to pay what you can while out of work without incurring penalty fees.
Divorce
Divorce is a very expensive process and often conincides with an increase in expenses and a decrease in household income. Legal fees, moving costs and all sorts of other expenses adds up.
Divorce is a very stressful time but you should keep your spending in check and look at where you want to be financially in a year. Lower debt and higher savings will give you confidence and security.
Health or Medical Emergency Expenses
A health or medical crisis can be devastating both financially and emotionally. If you cannot work the lost income can spell financial crisis. Even if you have health insurance, the gap payments and other incidentals add up very quickly. Identify where you can cut non-essentials and ensure you don’t make any large purchases.
If you are unable to pay your bills in full, let your creditors know you have debt problems. Explain the situation and ask to work out realistic payment plan to ensure you don’t end up with additional late penalties or collection fees.
Home or Car Emergency Expenses
When your engine conks out, your hot waterheater breaks it means a large but needed expense can put your finances in a nose-dive.
Identify where you can reduce expenses to fund your emergency. If you must get further into debt to pay for unexpected emergencies, explore all the finance options and work out a payment plan.