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Debt Traps at Different Stages of Life

There’s a bias in America that people who get into debt trouble have knowingly spent their way into the mess they’re in and it’s no one’s fault but their own. The preconceived notion that overwhelming debt is a result of keeping up with the Jones’ or an insatiable desire for material things fails to acknowledge
the debt traps that may arise as a part of everyday living. Here are some common situations that occur throughout life which can determine the difference between deep debt and healthy finances. Some of these situations can be avoided, while others are necessary steps that must deal with wisely.

DEBT STAGE 1: Young Adult

Perhaps the most vulnerable time in our lives for making financial mistakes is at the onset of entering the adult world. This is the time that we most need guidance but also the time when we crave independence. A healthy future depends to a great extent on how well this stage is navigated.

  • College Expenses – The first time many Americans are put to the task of managing their own money is during their college years. Many graduates come to regret the amount of debt they incurred during those years as it continues to haunt them, as they try to move on. While it’s true that undergrads may depend on student loans to pay for their college education, it’s important to consider the future earnings a degree will generate and keep student loans at or below that level. Exhaust all federal loan options before seeking a loan from a private lender.
  • Getting Married – With the average American wedding costing more than $18,000, serious consideration should be taken of cutting the costs, especially if one or both partners are bringing their own debt baggage into the marriage. Whatever amount you’re able to cut from your nuptials can be used for a down payment on a home or to pay down student loans or other debts.
  • Credit Card Management– Credit cards are a necessary part of establishing a good credit history and building your credit score. With moderate, consistent use, they are invaluable. Stick to a budget, make regular, on-time payments and don’t overextend your limit.  Avoid using convenience checks or cash advance services, as they carry heavier interest rates, penalties and fees.
  • Your First Home – Purchasing a home can be the best investment you ever make. But it also comes with a huge amount of responsibility. Good financial management is paramount to ensure your home (and finances) stay in good running order. With all the other debt obligations at this stage in life, it’s important not to get yourself in too deep. Be modest and only buy what you can truly afford.

DEBT STAGE 2: Family Life

At this stage of life, responsibilities for raising a family can be pressing. Distractions will be abound while trying to juggle kids’ school and sporting events, work, home chores and maintenance while working to maintain a healthy relationship. You may be savvier about how the world works now, but you still need to be vigilant and use your financial resources wisely.

  • Home Improvements – Many people begin in a starter home hoping to sell and move into their dream one. While other people want their current home to look like one from Better Homes & Gardens. But investing money into renovations doesn’t always raise the value of the home and could actually mean a financial loss. In addition, if you borrow to make improvements, you may find yourself making payments for years on a poor investment. Research the value of the homes in your area to see if the renovation will increase the value before committing to a home improvement contract.
  • Business Investments – Feeling more confident and savvy, you may want to venture into the stock market or start your own business. Risk is the name of the game when it comes to investments, so manage your risk wisely to ensure you don’t loose it all if something goes wrong. 
  • Co-Signing – Agreeing to help someone secure a loan by being a co-signer is synonymous with taking on the debt yourself. If the borrower misses the payment, it will become your obligation. As a result, negative management of the account will put a ding in your credit score and may make it difficult for you to obtain a loan on your own in the future.  The only sure way to dodge this debt trap is to just say no when asked to co-sign a loan or be prepared to take it on yourself.

DEBT STAGE 3: Retirement

By the time you reach this stage of life, you can probably see the wisdom of all the above points. Looking ahead you’re hoping for smooth sailing on a fixed income.

  • Tapping into 401K and Investments – Yes, the money is technically yours, but it’s also the means of providing for a secure future into old age. Do you really want to take the risk? Whether or not you’re considering a temporary loan, it’s still a dangerous move. Borrowing funds will mean a loss in growth potential, generate a tax bill and even result in penalties, depending on your age. Only borrow from your 401(k) if it is an emergency and you have tapped all other sources.
  • Limited Health Insurance Benefits – Financial experts consider health insurance an essential for securing your financial future, especially as you enter middle age and beyond. Repaying even a short hospital stay will take a decent chunk of your savings.

These are just a few of the scenarios that can affect your finances. No matter what the situation, the easiest way to avoid a problem with debt is to have a realistic budget that you have committed to follow. If, however, you find yourself in debt trouble and need help getting back on track, a reputable debt relief service may be able to help.

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