Did you know that the average American carries over $90,000 in debt? That’s a staggering figure, and it often leads to stress and financial instability. In this article, we’re diving into the biggest sources of debt that plague many people today—from credit cards to student loans and beyond. Understanding these sources is crucial if you want to take control of your finances and work toward a debt-free future. Stick around to discover practical tips on how to navigate these challenges!
Credit Card Debt
Credit cards make borrowing money too easy. It’s therefore no wonder that credit card debt is the most common form of personal debt. Surveys show that the average US household has a credit card debt balance of $6065. Using a debit card more and a credit card less is key to controlling this debt. It’s also important to choose the right credit card – avoid overly high spending limits if you know it will encourage you to spend that much, and shop around for low interest rates and good rewards.Â
Student Loans
Many people fund college with a student loan and is increasingly becoming one of the largest sources of debt many carry. This can be a hefty debt that people carry around for decades. Taking out the right type of student loan is important – federal student loans are the best option if you are eligible. Private loans have high interest rates, no postponement options and cannot be forgiven, so tend not to be as good a deal. But if they are your only choice, it’s important that you take the time to shop around for the right loan (you can always refinance later too).
Medical Debt
Medical debt can be one of the biggest debts for many US families. As financial experts like Alex Kleyner explain, medical debt can often have a snowball effect that can be hard to recover from. There are ways in which you can reduce medical debt. This includes taking out a low deductible insurance plan, exploring 0% interest medical loans and looking into financial assistance programs offered by clinics and hospitals themselves.Â
Auto Finance
Cars are so expensive nowadays that most people have no choice but to take out a personal loan or use a car finance service. The best way to reduce these sources of debt is to always shop around before buying a car. You should also be reasonable about what type of vehicle you can afford – opting for a newer and more high performance vehicle will result in more debt. While used vehicles can require more maintenance, they may still be less expensive in the long run thanks to lower debt payments.Â
Mortgages
A mortgage is the biggest single debt that many people have. Of course, most people cannot buy a house without a home loan and you will build equity over time, making this one of the best forms of debt. Of course, a mortgage can still cause troubles if you’re struggling to make each payment. Don’t overlook the option of refinancing your mortgage and, when buying a new property, don’t buy more home than you can reasonably afford.Â
Personal Loans
Personal loans can be taken out for all manner of reasons from paying for car repairs to funding vacations. You can reduce personal loan debt by building up personal savings to use instead. This could include an emergency savings fund designated for emergencies. When taking out personal loans, avoid extremely high interest payday loans – they may have low entry requirements, but could cost you a lot of money in the long run.Â
Business Debt
Most business owners take out loans to launch or grow their business. While business debt can be necessary sources of debt for business success, it is important to shop around for the best loans. Bank loans typically have better interest rates than private loans. Business owners should also consider the alternative option of crowdfunding or using investors to help set up their business. The guide by Rosalie Murphy explains how to fund a business.
