Common Causes of Debt
Debt is something that can happen to everyone, no matter how much you earn. There are some common causes that can often lead to debt. In this article, we take a look at the common causes of debt so you can identify when you might be at risk.
Relationship breakdown
When there is a breakdown in a relationship, it could mean you need to move and find a new place to live. If this isn’t the case, your partner might move out of the home. Either way, the money you’re used to receiving will be halved or reduced significantly. In this situation, it's vital to make a budget and understand what you can afford and the options you have. This can be challenging if you’re going through a tough time emotionally because of the relationship breakdown. Charities can help you to find affordable housing and offer advice on how to manage your reduced income.
Unexpected costs
Predicting that your boiler will break down or your pet will need to go to the vet is impossible most of the time. These situations can leave people out of pocket and struggling financially. You can prepare for some of these situations by paying for pet insurance or boiler breakdown coverage, but you can’t get insurance for every unexpected cost. Having rainy day savings can help in these circumstances, but not everyone has the ability to put away money for unexpected costs. If you have an unexpected expense you need to pay for, and you’re worried it's going to leave you in debt and unable to pay your bills, you may need to get in touch with a financial charity that can advise you of the best action to take.
Job loss
Most people get used to a regular stream of financial income and use this money to pay for bills, food and other costs they need to live. If you suddenly lose your job, it can put you in a situation where you don’t have enough money to cover the essentials. Saving at least a month of wages can help you get through a job loss. If you don’t have savings and you encounter this situation, you could see if you could apply for benefits from the government whilst you're out of work and looking for a new position.
Interest rates
Many credit cards and other loans draw you in with a free interest rate period. If you cannot pay back the money in that period, your interest rate will rise. This can leave you in a situation of uncontrollable debt. If this happens to you, a formal debt solution may be the only answer. Debt solutions such as an IVA or debt management plan will help you repay your debt at an affordable rate. A debt advisor can answer the question, “is an IVA right for me?” or any other questions you have about various debt solutions. Look at all of the options available and make sure you understand the consequences of your chosen debt solution before signing the agreement.
Having children
Children can be a blessing and bring a lot of joy into your life. However, having a child can also reduce your ability to work and lead to more expenses. Childcare is incredibly expensive if you don’t have family members or friends that are willing to help you out for free. When planning to have children, think about how they will impact your finances and research the kind of help you can get before making a decision. It can also help if you save up money before and during the pregnancy to cover additional costs. You can get certain benefits if you have children; speak to a financial charity or financial advisor to find out what is available.
Each of the situations listed in this article is a common reason why you might find yourself in debt. It's important to always live to your means and save money for any unexpected costs. By doing this, you can reduce your chances of being faced with the uncontrollable debt. Insurance can also help with unexpected costs such as vet bills, boiler, and car breakdowns. If you can afford the monthly or yearly payments for this type of insurance, you can reduce your chances of getting into debt.