What's Causing Your Debt—and Why You Need to Get It Under Control Now

What's Causing Your Debt—and Why You Need to Get It Under Control Now

Americans spend trillions of dollars on these five things each year, but they're not just hurting their finances.

We’re all familiar with the American Dream: a college education, a safe and comfortable house for the family, enough cash to afford monthly expenses and maybe even a little bit left over to put into savings or towards a vacation. Unfortunately, for many of us, achieving the American Dream means taking on a lot of debt, too. Investing in your education or a home is a great way to build personal and financial equity, of course, but if you rack up too much debt doing so, you put your finances, property and even your health at risk.

The sources of Americans’ debt
So, what’s causing our debt? There are a few obvious sources, like college loans, but some other common expenses might surprise you.

Your home: It may come as no shock that housing is the largest monthly expense for many people. Like we said, investing in a house is a great way to build financial equity. But if you can’t afford your mortgage, home insurance and taxes each month, you’re not just hurting your credit score—you risk losing your home, too. As a rule of thumb—whether you own or rent—try to spend no more than 30 percent of your income on housing. This should leave you with plenty of cash for other expenses, like food, utilities, transportation, child care and savings for your emergency fund at the end of each month.

Your education (or your kids’): Reports have shown that, on average, those with college degrees will earn approximately $1 million more over their lifetime than those without a college degree. Many graduates, however, have to take out student loans to earn those degrees. That’s why it’s so important to consider how borrowing will affect future finances—for both parents saving up for their kids’ college funds and students taking on loans. Before taking out a loan, be sure to assess the type of school you’ll be paying for (public vs. private) and the planned area of study (a high-paying degree vs. a lower-paying degree). These two factors will help you determine how much student loan debt is just too much, and whether or not you’ll be able to pay it back comfortably.

Your medical expenses: Even for those with health insurance, planned and unplanned medical expenses can be extremely expensive—and the costs are climbing. In fact, according to the Centers for Medicare and Medicaid Services, the national spending on healthcare reached $3.3 trillion in 2016, or about $10,348 per person in the United States. Plus, benefit coverage and the cost of care can be confusing or unclear to many people—especially in emergency situations—resulting in substantial, unplanned expenses. So, how should you handle a major medical bill? Having an “emergency fund,” or at least three to six months’ worth of living expenses saved, can help offset surprise medical costs. Alternately, many hospitals and doctors’ offices will work with you to develop a monthly payment plan based on your income.

Your kids: Did you know it runs a middle class family approximately $250,000 to raise a child in the United States, not including the price of college? Between housing, food, education, child care and other everyday expenses, the cost of raising a child can seriously add up—and many people aren’t prepared to take on that expense. Plus, unexpected expenses or having multiple children can raise that figure exponentially. The solution? You can try to develop a family plan and stick to it, but of course, not every child can be planned (hey, it happens!). That’s why it’s important to have a solid savings base and adhere to your monthly budget.

Your home improvements: Those weekend trips to the hardware store can certainly add up—to the tune of about $340 billion each year in the US. Home improvements are one of the largest sources of debt for Americans simply because it’s easier and more affordable to improve and repair current housing than it is to find new housing all together. Unexpected expenses like a broken air conditioning unit or hot water heater don’t help, either. Even if substantial home improvements aren’t in your short-term (or even long-term) financial plans, setting aside a few dollars each month towards them can help offset the costs.

Debt doesn’t just hurt your credit score
You may know taking on too much debt can result in a lower credit score, home foreclosures and the repossession of cars and other belongings. But did you know poor finances can seriously affect your health, too?

According to a survey by the American Psychological Association, 72 percent of Americans feel stressed about money from month to month. Financial concerns like excess debt can affect one’s general health by:

  • Increasing daily stress: Everyday stress can have seriously detrimental effects on your mental, emotional and physical health. Not only can stress contribute to depression and anxiety, but it’s also been linked to cardiovascular issues (such as heart attack, stroke and high blood pressure), as well as problems with the gastrointestinal, endocrine, respiratory, nervous and reproductive systems.
  • Impacting treatment for health issues: With the rising cost of healthcare, it’s no surprise that many Americans are avoiding doctor’s offices. In fact, 12 percent of Americans report skipping doctor’s appointments simply because they could not afford it. Because these patients aren’t seeing their doctors, their health conditions may be going untreated—or undetected entirely.
  • Affecting relationships: Money is a common cause of conflict in relationships, and 31 percent of Americans report it being a major cause of conflict. A poor relationship can increase stress levels, which may strain the cardiovascular, nervous, digestive and endocrine systems.

The bottom line? Avoiding too much debt can set you up for a solid financial future—and help protect your mental, emotional and physical health. The key is to develop an attainable, sustainable financial plan that can help you keep your money goals on track.

Medically reviewed in July 2018.

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