What Are the Main Causes of Debt? 5 Facts You Need to Know
An astounding $601 billion -- that's how much more debt US households took on in 2019. That brings the nation's total household debt to over $14 trillion.
Now, let's get something straight first: debts aren't always bad, provided that you can pay them back on time. So long as you don't let your loans pile up, they can help you make good investments, such as a home, for instance.
The big question is, what are the main causes of debt in the US? When and why is debt bad and what can you do to avoid drowning in such huge financial liabilities?
We've rounded up five facts that you should know about debt, so be sure to read on!
1. What Are the Main Causes of Debt? Mortgage Loans Top the List
In the last quarter of 2019, mortgage loan debts totaled $9.56 trillion. That's a staggering $120 billion increase from the previous quarter.
With all that money owed, housing loans remain the main cause of debt in the US.
2. College or University Loans Rank Second
This 2020, the estimated total of student loan debts in the US has risen to $1.56 trillion. About 45 million people are still paying for those student loans. Members of the Class of 2018 alone have an average student loan debt amounting to $29,200.All this has made student loans the second primary cause of consumer debt in the nation.
3. Taking on Multiple Loans Also Leads to Skyrocketing Debt
As of 2018, the average personal debt per US consumer amounted to $90,460. That amount is 55% higher than the nationwide average personal income of $50,413.
The constant use of credit cards for big purchases is a top reason behind uncontrolled debt. If you're paying off your balances right away, that's great. If not, balances that run longer for six months can result in huge compounded interest.Also, forget that thing you've heard about proper credit utilization being 30%. Especially if you want to improve your credit score. According to experts, US consumers with a FICO score of over 795 only utilize 7% of their credit limit.
4. Incorrect Budgeting Can Lead to Bad Debt
If you don't know where your money goes and how you're spending it, you might end up taking more debt than you can afford. Debt that you could avoid if you only had a budget to follow.
As such, create a budget now before taking out any other loan. This way, you can determine if your finances can afford any more additional debt.
5. Failure to Get Help May Also Give Rise to Long-Term Debt
The longer you put off paying your debts in full, the bigger your interest payments will be. This, in turn, can make you wallow in debt longer than you have to.
One way on how to get out of debt with no money and bad credit is to seek consolidation aid. This may be a good idea if you have multiple loans, especially high-interest ones. Debt consolidation services, like those from this company, may have better repayment terms.
Start Paying off Your Loans Now
There you have it, all the answers to your question, "what are the main causes of debt?" Now that you have an idea, you can then make adjustments to your buying and borrowing behavior. A good way to start is by thinking long and hard before you make any purchase that requires taking on more credit.
Ready for more facts to help get your finances in order? Feel free to check out the rest of the posts under this site's Lifestyle section then!