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    Essay on Cause and Effect of Debt

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    It is an undeniable fact that debt is a major problem affecting millions of individuals all over the world. It has become a problem to the extent that most individuals and families are unable to think about what they owe or even how they landed in their debt situations. The simplest explanation for debt is that it arises when individuals or households get to spend more than what they have or earn. However, when real-life situations step in, it is never that simple. A decision to pursue higher education, poor planning, or, most commonly, unexpected decisions are the major reasons why most individuals and families or households are in serious debt. These situations are the primary reasons why most individuals and households are barely surviving, even when they are working. Through understanding the major causes of debts and its associated effects, individuals and families can better understand how to manage their finances to avoid ending up in almost irreversible debt situations.

    Medical expenses, loss of income, and poor financial planning are the primary causes of debts, while unrealistic goals, low credit scores, and strained personal relationships are its effects. Medical expense is the number one cause of debts, particularly in America. In the United States, medical costs have been attributed to be among the leading causes of bankruptcy. The worst truth is that even individuals and households with health insurance covers are not immune to medical debts. A health condition, injury, or an illness can leave individuals in debt as treatments of these health conditions causes the costs of medical to escalate at an unimaginable rate. Recent research conducted by the Kaiser Foundation Surname 2 established that ‘that three in 10 Americans report that they or a household member have had trouble paying medical bills in the past year — 58 percent of which were affected in a way that had a major impact on their life.

    More than 60 percent of respondents claim their savings were wiped out. Another 37 percent turned to credit cards’ (Lemke 1). It is not only challenging but also impossible to predict one’s health condition in the future. Therefore, as evidenced by the above statistics, it is apparent that medical expenses can wipe off all the savings and even the assets an individual or a family owns, thus ending them up in a severe debt situation. Reduced or loss of income is another primary cause of debt. Usually, individuals are advised to live within their means. This is true but again challenging. In situations where individuals have lost their sources of income, adjusting to less of what they initially had gotten used to usually is challenging; therefore, most households will use savings to maintain their lifestyles.

    In most cases, this goes for a few months. Afterward, they may be forced to borrow from friends and institutions. By the time they come to realize about it, they will have ended up in a debt crisis (Lemke 1). Alternatively, early or unplanned retirements can end up families in similar situations. When individuals go to retirements, if they never invested, it would mean they would end up surviving on pensions, which is never enough. Within no time, they would realize that they are being overwhelmed by bills and expenses. Consequently, they will fall into debt traps.

    Poor financial planning is another major cause of debt. Financial planning regards the evaluation of the current pay and future financial needs of individuals. The primary reason for financial planning is to enable individuals to live within their means and get ready for future uncertainties that may arise. While this is the only way of ensuring a financially secure future, most individuals and families do not plan for their finances. As a result of a lack of planning or inadequate planning, they end up in huge debts. Notably, this is because Surname 3 individuals and families end up spending beyond their means without being aware. With time, it leaves them with substantial debts that they may not even service and hence may end up selling their assets.

    The number one effect of debts is on goals. Being in debt affects individuals’ shortand long-term goals. Goals require financial resources; without them, the achievement of plans such as building a home, making a trip to some destination, buying a car becomes far too out of reach (The United Union 1). With debts, the priority usually shifts to settling of ones’ debts. All the set plans and goals become secondary as almost all the financial resources shift to meeting basic needs and servicing the debts.

    Secondly, being in debt affects individuals’ credit scores. Typically, it is a vicious cycle. A huge debt drives a low credit score. The low score affects one’s ability to get cheap loans. With a low credit score, individuals will be forced to pay high-interest rates to secure loans (The United Union 1). Consequently, paying high-interest rates on loans will affect the available cash flow. At the same time, bad credit affects individuals’ abilities to rent a home/apartment or get a job, thus affecting lifestyle. Also, debts can affect personal relationships. Debt is a primary cause of lost friendships, arguments with children, and worse still, it causes marital problems.

    Whenever in debt, individuals tend to feel deprived. As a result, they may look for people to blame. These blame games end up causing serious relationship problems that can even result in divorce, another major cause of debt. Conclusively, being a significant problem, debt can result from various sources or factors. The primary causes of debt include, among others, poor financial planning, reduced or loss of income, and medical costs. Once in a debt crisis, individuals/families are will experience adverse effects; these might include strained personal relationships, low credit scores, and difficulties meeting goals, among others. It is, therefore, important that families and society, in general, adopt healthy financial planning strategies. Failure to do so, most families will live in poverty as they will struggle to barely survive

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