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Unsuspected Methods of Accruing Debt

By: Michael Millington


When debts begin to grow out of control, it might fall until you’re forced to look at your finances in a different light. There are many known ways to get into debt and mostly without much being different in your financial habits. However, there are some things that can be added to your spending (either one time or as a monthly recurring charge) that can create a debt that you wouldn’t have seen coming.

In general, the type of debt I’m referring to is not supposed to be debt. Many of these things are meant to be beneficial to your way of life or your spending habits. However, at some point in time the benefit turned into a detriment and the thing you thought was a money saver (or a good investment) began to make your hemorrhage money like never before. There are many things that fit this description, so we’re going to focus on general categories and explain how they can be potential debt traps you can fall into.

 

Timeshares

A timeshare is the perfect trap to fall into when you’re on vacation. You’re staying at a lovely hotel and someone approaches you with an offer too good to turn down. They invite you to a presentation and offer you a guilt free reward just for showing up! So you listen to their pitch and you figure, what’s the worst that could happen? You pay a set amount on a regular basis and you get to use a sweet timeshare whenever your want. Who wouldn’t want to jump on an amazing offer like that?

Thing is, once you sign on the dotted line a couple thoughts will enter your head. What are you paying for? How long are you entitled to keep paying for this property? Is the payment all inclusive or are there extra fees or hidden charges? And, most importantly, can you actually afford to keep paying for it going into the future? Many things can happen in the course of one’s life. Sometimes it doesn’t facilitate an ongoing financial obligation as stubborn and unmoving as a timeshare.

Don’t get me wrong; a timeshare can be a wonderful investment if you have and will have the income required to maintain those payments. But if you happen to lose your source of income due to loss of job, injury or some other terrible incident, a timeshare can just as easily go from a great investment to a financial headache. Since you sign a contract for most timeshares, you could be on the hook for those payments regardless of what your financial situation becomes. Before you decide upon a timeshare, be sure you have the funds to integrate that responsibility into your budget.

 

Vacations

Speaking of timeshares, you’ll never hear about one when you trudging back and forth from work. You only get timeshare pitches when you’re traveling. It’s a means to get you to come back to wherever it is you’re visiting. However, you’re on vacation. You’ve been planning out this trip for months and you know you have exactly what you need to spend on this trip and have a nice time. But vacations can be a tricky endeavor. As is the theme of this piece, a vacation can end up costing you quite a bit more than what you originally intended.

Vacations tend to sneak up on the unsuspecting traveller for many reasons. One of the more unpredictable problems is the impulses a tourist might feel in a foreign land. Maybe you felt like buying an extra bottle of tequila in Mexico. Perhaps you’ve been told that you simply must take cooking classes while in Italy. Or maybe you’ve always dreamed of catching a soccer match in Spain. None of these things were on the itinerary before you got on a plane, but it's become a nagging thought in the back of your head and you can’t get rid of it. You’re here (wherever here is) so you might as well make the best of it. This is all but a fast track to debt.

While unaccounted for asides can put a dent in your credit cards, something that everyone should be aware of are taxes and conversion rates. Even when traveling locally, be aware of the tax laws wherever you happen to be. It might seem small, but it can quickly build up if you purchase things abroad without paying attention. Another thing to mention is using your credit and cellular phone abroad as well. Sometimes these things come with added fees and such. In order to avoid debt in this manner, be sure to do proper research on the areas you plan to vacation in.

 

Holiday Preparation

One unsuspected form of accruing debt comes when the holiday season rolls around every year. Whereas the last two examples are experiences we tend to learn from, some people prepare to be thrust into debt every January. It’s not necessary to end up in debt when the end of the year comes, but the holiday spirit does tend to make people spend more money than any other time of the year (this includes anniversaries and birthdays).

Why do people end up in debt from the holidays? The season was built for spending. Since the gift giving season has a timeframe, most of the new things you’ll want to buy will come out around that time. Chances are you’ll fawn over them for months on end until you finally are forced to come to a decision on whether you want to buy or not. But where there is something you want to buy, there is always something else. Upselling becomes a huge part of the shopping process during the holiday season and can quickly drain you of your funds at the end of the year.

A great way to avoid holiday debt (and much of the other holiday rigmarole that accompanies it) is to prepare for the holidays ahead of time. Buy gifts and decorations months beforehand, leaving things like food and travel expenses last. If you know that something you want (or want for someone else) is going to be released close to the holiday, see if you can prepay for it or have it shipped to you. Avoiding the shopping atmosphere can help you to avoid making terrible choices in the long run.

 

Medical Emergency

There are a great many instances that can qualify as medical emergencies. Those that you see coming are not the ones we are talking about here (such as a pregnancy or an aesthetic change). We’re talking about the medical emergencies that are freak accidents or unplanned for events. These are the kinds of emergencies that might require insurance you don’t have and, of course, money you don’t have either.

The only real way to avoid ending up in a debt situation with a medical emergency is to utilize your savings to offset the cost. This would require you to save your money over time. While it happens to be a helpful way to make ends meet with your financial emergency, it can also completely wipe out your savings. It can be hard to deal with the recovery process if a medical emergency should befall you or your loved ones. Getting back to the regular swing of things afterwards can be tough, physically, mentally as well as financially.

In some rare instances it might be possible to avoid using your savings in these instances. As mentioned earlier, insurance can be a saving grace when dealing with a medical emergency (granted you have enough coverage to handle the issue). If you have trouble making payments for medical supplies or medication, there are ways to have the issuing hospital help you out. Be sure to speak to your hospital representatives and let them know if you’re dealing with any hardships.

 

Loss of Job

In this day and age, losing your job can be as unexpected as anything else listed here. Downsizing is a common issue with many companies across the nation. Due to no fault of the employee, the company must downsize in order to keep from worse conditions (like closing their doors altogether). In some instances there is some sort of severance pay that can help with such a happening, but that can be a rare occurrence.

Since your job would be your main source of income, losing that would be a severe blow to your ability to pay bills and maintain existing debts. This would also change how you view spending. Depending on your current budget, you might not be able to make the drastic changes necessary to account for a lack of income. This is especially tough if you have no excess to trim from your monthly obligations. Switching the funding from cash to credit can create a slippery slope of debt in a matter of months.

Much like with many other unforeseen instances, your savings could play a large role in this situation. A number of financial experts say you should save at least six months worth of savings to survive on. This means being able to pay for everything you would normally be able to pay for for at least half a year. As long as you add nothing else to your base minimum financial obligations (and you look to replace the lost source of income) this debt pitfall might not be as bad as it seems.

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