Understand Sources Of Debt Before They Become Problems
The word is uncomfortable. It sometimes comes with the idea that you have done something wrong (you haven’t), or that you are irresponsible (you aren’t). Some financial planners are estimating that the average 50-year-old American is well over $100,000 in debt.
Debt, on its own, is not a problem. Debt becomes an issue when you are one unplanned event away from not being to make a payment. I.e., if you are spending your paycheck the second it comes in, what happens if you lose your job? Having savings is a layer of protection. You might not have 100% control of whether you keep your job or your business stays profitable, but you are in command of your spending and saving.
Let’s look at some common forms of debt to better understand when they can become unmanageable.
Drive through a neighborhood, and you will see household debt. Here are some examples of household debt or consumer debt:
- – Mortgages (and 2nd Mortgages)
- – Home Equity Loans
- – Credit Cards
- – Cars
- – Furniture
- – Student Loans
Credit cards are referred to as revolving debt. Why? Not only can the interest rate on credit cards fluctuate, but the amount you pay towards them every month can vary. Do you pay the minimum that is required? Do you pay off the full amount?
Although it is not advisable to get into credit card debt, especially because the interest rate is so high, you will not likely default on revolving debt as fast as non-revolving debt (more on that soon).
If you lose your job, have an unexpected medical expense (more on those too), you can survive by making the minimum payments. Again, this is not ideal, but we are not talking about optimum circumstances. This is in the event of a financial emergency.
Non-revolving debt covers everything else in the above-mentioned list. Your mortgage, your second mortgage, your home equity line of credit, your car loan, and your student loan have required amounts you have to pay at designated intervals.
If you are relying on your next paycheck to make a non-revolving debt payment, then this is where you are no longer insulated from the unforeseen.
This is what causes half the bankruptcies in America. In addition to the medical bills, it can also lead to you being incapable of working. Next to this, unemployment and uninsured losses stand as the other common reasons why people become bankrupt.
If you have debt that you cannot pay, then Maxwell Dunn is in a position to help. Contact us online today to schedule a consultation. Then we can discuss your situation to see what options are available for us to pursue together.See all videos