Top 3 causes of Debt and possible Solutions

Financial experts are highly concerned about the growing household debt in America. Especially, unsecured debt is shooting up perilously these days. Data from the Federal Reserve discloses that Americans have accumulated $796 billion in revolving debt. What is the reason behind such a debt crisis in the U.S? Let’s find out.

1. Stagnant income due to economic depression: The recent economic depression has caused widespread unemployment across the U.S. Along with unemployment, there has been massive underemployment and wage cuts. Consequently, most families are running short of funds and dependence on credit cards has increased alarmingly. People are borrowing more and more and the debt level is getting higher.



2. Immature money management: American consumers have become deeply addicted to debt. As stated previously, an increasing dependence on credit cards can be noticed. Moreover, few U.S families resort to budgeting to manage their finances. Financial awareness among the consumers is low and not many people are eager to hire financial advisors to manage their wealth.



3. Divorce: Divorce is becoming more and more common these days. According to marriage101.org, divorce rate in America is close to 50%. Divorce can be an extremely expensive proposition and it can push even a very wealthy individual into debt. Paying alimony to your spouse can cause you sleepless nights.

Indebted people have two options to eliminate their financial troubles. Firstly, they can either devise a proper strategy to clear their debt. Secondly, they can hire professional help to get out of monetary problems. Let us discuss both the options in detail.

1. Do it yourself: Yes, it is certainly possible for you to solve the debt problems yourself. But remember that this requires extreme patience, discipline and perseverance on your end. To begin with, you must prepare a well planned budget and follow it sincerely. You must have the will power to part with your unwise spending habits. Also, you would require following some debt reduction methods like debt snowball or debt stacking. A combination of the above tips can get you out of debt provided your debt has not spiraled out of control.



2. Debt relief programs: The do-it –yourself method will not be suitable for a lot of people who have incurred huge debts. For them, debt relief programs are the only way out. Your options include:


Debt consolidation: This is a process by which you combine all your debts and make a single monthly payment. A debt consolidation company will help you to negotiate with the creditors to consolidate your debts.

Debt settlement: With this program, a debt settlement firm negotiates interest as well as principal amount with your creditors. This is a more serious option and is essentially for debtors with acute financial problems.

Bankruptcy: It is unanimously agreed that bankruptcy is the last resort for debtors. If all other debt relief options have failed you, then you might consider filing bankruptcy. With Chapter 7 bankruptcy, your debts are paid off by liquidating your assets. If you want to save your assets, then file Chapter 13 bankruptcy, which involves a new payment plan.

It is always advisable to hire a debt settlement firm or a law firm to eliminate your debt. They have the professional expertise and experience to end to your financial woes.


This article is a guest post by BG, who is an IAPDA certified debt arbitrator associated with Oak View Law Group.