According to the oxford dictionary, a person is defined to be in debt when he/she owes some amount of money to somebody else. The reason why a person goes into debt is major because of the expenditure is more than the income. There can be various reasons for this happening and it becomes necessary to know how a situation of this type occurs as it would help us analyze the function of debt in our daily lives.
Let us take an example of a family X. Suppose this family has been keeping their personal finances under check and be able to breakeven the income with the expenditure incurred in the various needs of the household along with any extra contributions here and there. Suddenly, there arises a situation where the expenditure rises forcing the family into debt. To cover up the deficit, there is a need for new financial planning which would include cutting down on the costs.
What are the situations which can lead to debt as an after effect? If this question is answered, the planning can be done beforehand and much trouble avoided. Debt Settlement is a legal, logical and ethical way to get out of debt.
The various reasons causing financial debt are:
Loss of Job
Loss of Job is one of the major reasons for increasing debts (go for debt financing – it’ll help you mucho!). Since the loss of a job cuts down on the income drastically but has no effect on the expenditure, the deficit increases causing the individual under the question to induce a condition of financial instability upon himself.
Higher Levels of Expenditure
The level of expenditure is always in comparison to the income levels. If the amount that is spent is high compared to that earned, there can be huge losses coming your way. The people who generally suffer from this category of personal finance problem are those who cannot afford to enjoy a high standard of living but still do so. The amount of debt is further increased if the costs are reoccurring in nature as in the case of medical necessities.
Education can bring along with it a huge financial debt. The tuition fees of the institutions are very high and cannot be met by a lot of people. Debt increases if the families do not cut down on the current expenditure levels to facilitate a proper adjustment of the funds required for education in a planned manner.
There are various schemes that are available which provide the general public with options of buying various assets in the form of houses, investments, insurance, etc. These require the buyer to pay the sum amounting to the value to the assets over the years in prefixed installments called “premiums” resulting in a permanent increase in the expenditure for a long time.