Debt is the adult equivalent of a nightmare. We know about the vague truths of the situation. However, unless you have experienced debt for yourself, you have no idea what it feels like. We can tell you it is as though you have been trapped in an avalanche. Lost under all the snow, you desperately try and scrounge your way towards fresh air. As fast as you dig upwards, the weight of your debt continues to fall down on you making it impossible to escape. At some point in your life, it is likely that you will deal with a level of debt. It might not be quite as serious as it is for other people. Yet, you will almost certainly owe money. Essentially, thats all debt is. Owing money that you cant pay back straight away. Serious debt issues tend to mean that the money builds due to high rates of interest.
Now, a new report has revealed the most common culprits of debt. We know there are other factors at play here. Certainly, personality and whether you have addictive tendencies will play its part. Borrowing money can be addictive, particularly if it helps you increase your quality of life. However, these are the issues that can affect your bank account enough to push you into debt.
If you have been following the entertainment news lately, you might have noticed a few nasty celebrity divorces. Or, relationship breakups. This has included Johnny Depp & Amber Heard as well as the alleged divorce of Victoria & David Beckham. That latter case is thought to be a fight over capital and finances worth over a billion. It certainly puts your financial troubles into perspective, doesn’t it? Just imagine if you were about to enter a legal battle that could cost you over one billion in damages. Its likely going to be a rather vicious affair too with rumours of cheating scandals and other marital issues.
Another rumour suggested that the whole confrontation between Depp and Heard was so that Heard could get money. Allegedly, the actress is close to broke and wanted to ensure a large settlement during a divorce proceeding. Whether you believe these rumours or not is beside the point. The fact is that a person on any side of the legal line could stand to lose a lot of money in a divorce proceeding.
In fact, Eddie Murphy was famous for joking about how dangerous marriage was in the late eighties. He used to claim that any celebrity marriage would result in the loss of half the earnings. A thought that still, didnt stop him getting married and suffering through a divorce himself.
So, what can the average person learn from these stories? People should remember that marriage is more than just a declaration of love. It is a legal commitment. When you enter into a marriage, if it ends you could lose a lot of your wealth. It might even push you into debt, particularly with legal fees. Thats why everyone should have a prenup before they get married. A legal agreement that ensures they are not left with nothing after a divorce proceeding. It might be worth also keeping at least part of your money separate. Particularly if your partner puts more towards your finances than you do.
Reduction In Income
A reduction in income could occur for any number of reasons. Although, the most common cause is always going to be redundancy. If you are made redundant, you should get a pay package. This is intended to keep your finances in the green for at least three months. Three months is the duration of time that on average employers assume it will take employees to find another job. Unfortunately, these days it can take at least six to twelve months to find a new position on a competitive market. During this time, that pay package will be running out, and people have to start relying on savings. If they dont have savings, they can find themselves having to borrow money. At that point, it is easy to end up in debt. Particularly, if there is no new source of income.
That said, most people are able to keep on top of their finances, as long they change their spending habits. During a period of redundancy, people should be spending less money and working to reduce their expenses. Many people would argue this is easier said than done. However, just reducing the amount spent on energy can have an impact. Indeed, its possible with efficiency tactics to reduce a water bill by twenty-five percent. Add this onto a payment package and job seekers allowance; it should be possible to stay afloat. The problems only occur when people continue to live as they did before with a reduction of income. This brings us to the third most common cause of debt.
No matter what your income, you should be living on some form of a budget. You need to make sure that you have enough money in savings for rainy days. As well as this, you need to guarantee that you dont spend over your means. Spending over your means can leave you in a position of bad credit. If this happens, its because you havent paid money owed back on time. When you do need to borrow money, you will only be able to access bad credit loans. These are dangerous and can be toxic for your finances.
Planning a budget is remarkably easy. You just need to work out your total average monthly spending. Do this by adding up your bills and any other instances where youll be spending money. You can then add on an amount of savings. Aim for this to be roughly twenty-five percent of your monthly paycheck. After that, take into account any other bills that crop on on occasion such as petrol costs. The amount left over is excess money you can spend throughout the month. It is people without a budget plan like this who usually end up in debt.
Medical costs can be frighteningly expensive, particularly if you dont have health insurance. Or, if you need private treatment. Some people will need private treatment because they wont be able to suffer through the wait times. As this point, medical treatment can start to cost as much as a new car. Is it any wonder that bills for this type of treatment are one of the main causes of debt. Unfortunately, theres very little that you can do to avoid this one.
You can try to get the best deal on health insurance. You may want to shop around for the best private medical company around such as Bupa. Even then, though, treatment for a difficult condition could end up costing you a fortune.
However, what you can do is claim compensation for an injury that you have sustained. Injuries are typically not complete accidents. Usually, there is cause even if you are not fully aware of what it was. If you were injured on someone elses property, you could make a claim and you should. This isnt to gain a profit because you most likely wont. Instead, its to get the money you need to pay for those legal bills. Firms such as UK Claim Lawyers can help you with these type of cases. They will make sure that you get the money you need to pay off those expensive bills and avoid debt. Dont forget that when you have suffered an injury, you might be off work. At that point, two causes of debt are adding together, and those odds are difficult to beat.
Its the mindset that causes the trouble here. Underemployment is quite similar to a reduction in income. Youre not going to be getting enough money to pay for all your costs throughout the years and thats an issue. However, its not the main problem. The concern is when people start treating unemployment like a sort of holiday that they look forward to. A break from work where they feel no pressure to get another job too quickly. Suddenly by the end of the year, they realise they have only been working three months. It can happen all too easily because you lose track of the time. They can usually afford so much time off because they start to live on credit. Rather than paying for things themselves, they let the debt build to a point where it becomes unmanageable.
People may like breaks from work but be careful about thinking of unemployment as a holiday. As soon as you lose your job, you must start actively searching for another. In fact, you should start searching while youre holding a current position. Otherwise, it might be a long time before you get another one. Particularly one that offers the same level of pay you receive now.
These are some of the main causes of debt, and you should be aware of them. If you avoid these issues, you can stop yourself becoming a victim of your finances.