Saturday, December 11, 2010

Reasons why people get into debt

With the holiday coming around, we all have a lot to be thankful for. It's a season where shopping, eating, and family are celebrated among love ones. Not surprisingly, my office usually slows down around this time of year because people are trying to stay positive and cheerful.

Reading some of the comments from my previous posts, there might have been some misunderstanding because I feel like I might have inadvertently misled some readers into thinking that debt issues/problems only occur to people who are irresponsible with their money or overspend. While there is some truth to that belief, the number one reason why people file bankruptcy in the United States is for medical reasons. This shouldn't come as a surprise since the U.S. still has a long way to go on health care policies.

Unless employed with a financially-sound company that subsidizes health insurance, health insurance is prohibitively expensive to many people who have to buy their own. Those with health insurance through their employer typically pay $40 per pay check toward health insurance; the employer pays the other $300-400. This causes a problem to those who are either unemployed or work for a company that can't afford health insurance for its employees. These folks can't afford to pay for health insurance. One bad health incident can lead to a life-time worth of debt.

The number two cause of debt issues is change in circumstances. Divorce, unemployment, market changes, etc. can transform someone who was making six-figure income into someone who depends on public assistance to pay rent in a matter of months. It is natural for humans to be financially optimistic about ones future. People borrow money to survive until the worse is over... unfortunately, creditors can't wait.

As you can see, the top two reasons that people go into debt have nothing to do with being irresponsible with money or living beyond one's means. Life is full of surprises, some will leave you debt!

Happy holiday everyone!

51 comments:

  1. Wow..I thought it was the irresponsible people who are in debt the most. But being a shopaholic, I'm gonna have to start being more responsible with how I spend money. and I HATE being in debt..even right now school tuition is killing me!

    Thanks for the info and I hope you have an awesome holiday! :]

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  2. I never really realized this, but you have an excellent point. I too thought it was due to over spending, or buying a home you cant really afford, or poorly spent student loans and stuff like that. But it makes sense, my younger brother, even tho my dad has good insurance, some of his medications for his skin condition were EXPENSIVE, it was a 600 dollar topical ointment, and with my dads insurance, he still had to pay $100 himself.so i cant imagine people with no insurance, and have some serious serious accident or illness come up.

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  3. Yes. That is very true. Medical reasons. Medical bills are extremely hefty and it makes me so nervous to go to a doctor or hospital now. I was extremely sick a few years back and when I was financially dependent on my parents, I remember that my parents were literally still paying of the bills a year later. It's all due to the x-rays, ct scans, medication, etc. Insurance only covered a very small portion of it.
    I think irresponsibility can lead to debt but I'm glad that you clarified that that may not be the only case.

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  4. Hmm good point about the medical thing. I never really thought about it..health care is somewhat free here and I've never had to worry about that (thankfully).

    Number two is an obvious reason that I know many families are going through. It must be so tough going through those life changing circumstances...I can't imagine what I would do if that ever happens to me. Obviously, seeking legal advice would be one of my options, but the hassle is always at the top of everyone's mind when it comes down to that.

    Hope you, Steph, and your families have a very happy holiday! Be safe and eat lots! ; )

    xx The Little Dust Princess

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  5. I completely agree...I personally know people at work who have racked up huge debts because their parents didn't have health insurance and then got cancer and they had to help pay the medical bills, which are crazy expensive. I find it that hospitals can charge really unreasonable fees.

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  6. Good point. Never really thought of things in that aspect. I guess it's easier to blame it in irresponsibility since that occurs more often than medical or circumstantial changes. Unfortunately that holds true for my ex-fiance's family. They owned a lovely home and business in Huntington Beach...until he lost his father a few weeks ago. Now they're losing their home AND business. Wowzers.

    It's definitely a season for retrospect and gratitude for having what you have now.

    Hope everyone has a warm and love-filled holiday!!!

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  7. funny, i took geog class that focused on europe. european and american governments run in the same way, but health care for europe is different. european government is willing to help their people because of the "brotherhood" so almost everyone has health insurance which is surprising unlike america where everyone has to pay for their insurance. maybe we should live in europe and not facing against debt! great post by the way :) happy holiday!

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  8. That is a very good point, as many other previous comments have mentioned.
    I know that many different healthcare videos/ "poverty" videos we have watched in classes have all mentioned health care as a leading cause.
    It is so sad that an unexpected circumstance that you have no control over can cause someone so much debt and even having to file bankruptcy

    You mentioned how your business tends to slow down this time of year due to people wanting to be more cheery, etc. What percent would you say come in to file bankrupty because of these 2 main reasons you mentioned? Do you think you see more or less people than the average?
    This interests me a great deal because while many think of "debt" as being a self-inflicted burden, as you mentioned, it often is not--

    great post and clarification!

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  9. Very well said.
    And I just thought I wool tell you that you post are helping me impress my teachers. Haha, like one of your previous posts about the 4th amendment, I had a debate about it with my civics teacher.
    Just thought I would say thank you~

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  10. Wow, thanks!! I almost forgot about the health insurance part in the USA. I guess I'm kind of used to Canada's health insurance plan.

    But like others commented, well said indeed!

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  11. They are right in that the causes of bankruptcy are not always a waste of money, there are many misfortunes that can take you to be nothing. The worst is the subject of health, there are people who can not afford a doctor, even if contact lender
    and merry christmas

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  12. Running into debt is the worst feeling ever! You end up having to save up enough money to pay that off before you can really start spending it on things you want. it's such a coincidence you had this post cause last night I was actually having a long conversation with my friend about debt and paying off student loans.

    I definitely do agree that the biggest cause is due to health related situations. Many people who do not have insurance and cannot afford those highly cost hospital bills end up having to pay off debt for their rest of their life. its sad. :(

    Happy Holidays to you too Minh! :D


    -SharBEAR

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  13. these are good points. I am very conservative with my money and like to think that I'm cushioning myself for the worst but one could never know...

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  15. Your posts are so simple and easy for one to understand and relate to. The 2 reasons you've mentions are really the ones that people seem to overlook. Reading the first few lines of this post, I was quick to make the typical judgment that people are in debt because of erratic spending. But it is true that a lot of people end up in a life time of debt because of unwanted misfortunes. And money related issues can show the ugliest side of people.

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  16. Minh, I totally agree with what you said. Irresponsible people are not the only ones who get themselves into debt. My dad got layed off nearly 2 years ago, and he lost all the benefits he received through his employer. Luckily, my mom's company provides good health care coverage and is very affordable that she was able to add him onto her plan. They're also very conservative with their hard working money, and had saved some aside for the rainy days. Had they not have those savings, and health care coverage, they probably wouldn't be able to make rent & credit card payments now, and bankruptcy might be their only option.

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  17. My goal this new year is to pay off the small debt that I have and to NEVER EVER spend more than what I have or make.

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  18. This topic hits way too close to home. My dad had to file last year and in one way I think it's wrong to file beacuse its a cop out. I still feel like it was wrong for him to file due to irresponsibility but right now I'm carrying on his burden it would have been a lot more if he didn't file. he felt embarassed and humilated but i told him how he was ruining our lives and our future. my dad got laid off several years ago, 2 years without any work cuz he's 65. then he got a job, 2 months later, laid off again due to economy.

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  19. I'm curious about when it is the busiest time in your office?

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  20. Yeah, I agree w/you... it's so common, and especially since medical is the #1 reason people file for bankrupcy. Even with companies paying a large chunk of it, that $30-40 is a lot still if you multiply it by two payrolls. Insightful post!

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  21. I never really thought about that but it is so true. My friend’s parents are in major debt, because her dad was in the hospital for like about a month and had no insurance due to the fact that he was self employed and couldn’t afford for an insurance.

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  22. wow!! as usual, your post is super informative, and brings important issues into light!! your blog always helps me develop such a great understanding of the law, and how to prevent bad thingas from happening. thankyou for yet another great, helpful post!!

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  23. 'the number one reason why people file bankruptcy in the United States is for medical reasons.'

    Woah! I didn't knew that! Very surprising to me...but super-informative!

    And changes in circumstances...yeah...I think that's the same in Germany. (I live there. ;) )

    But this topic would make an interesting discussion in my English lessons! ;) Maybe I'll suggest it!

    So thanks a lot for posting this! Happy holiday! =)

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  24. I always thought the medical reason was number two, guess not though I shouldn't be so surprised about it. Especially since the US has a pretty weak health care system! Even health care reforms are met with high oppositions, sometimes it makes me want to move to the UK to become a citizen to reap in their free health care.

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  25. Hey, I have a question. Can debt collectors legally call your job? -.-

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  26. wow can't believe medical reason was also a big deal. Now it it just realize that it even costs a lot for medications and meds.

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  27. Another great post. I like how your posts get me thinking about all of the "What if's" the may happen one day...it makes me realize I need to start saving and planning for the future.

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  28. Thanks for yet another informative post! I totally agree with this topic. Medical reasons are too, a major part of why people get into debt. I have zero medical insurance and also unemployed. That's the main reason why I have none. So now I would have to depend on the government for now, until get a job. Which sucks, cause I have no choice, I have to live! But I'm keeping it positive, hoping and praying I would a job soon!

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  29. overspending and not looking over the amount of income is probably the leading reason for debt and bankruptcy. i have learned from my mom (asian parent) to save whenever possible. luckily for that lesson i have not had problems with money

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  30. Quick thought and question... What if Person A goes into debt because Person B has a card under Person A's account and Person A wants Person B to pay up their share of the debt since they're divorcing? Can / May Person A do that if they can prove who bought what?

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  31. I cringed reading this because it's so true.

    A month ago I had to go to the ER for heart palpitations and the next thing I knew I'm charged 3K for everything; down to a tiny box of tissues I used which apparently cost $45 at an ER, shurgs.

    On top of that, I recently got into a car accident and now I'm looking at forking over 2K for body work on my car door, sigh.

    I honestly think it's ridiculous that some things are so expensive these days!
    Gas, medication, produce costs and such.

    Oh, yeah- not to mention tuition fees!

    I feel sad now...

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  32. I heard that health insurance is very important, now I'm more sure the reason why. Didn't notice that it seems little problem can cause people in Life time worth of dept :(
    Thanks for your information!

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  33. Mihn, you make great points! I always though the people who go into debt cannot control their spending.. lol.. simply because that is how I go into debt.. I guess I was blessed with cheaper medical insurance that I never thought that could be a problem..

    And I heard divorce was expensive!! 60$ to get married, but thousands to get divorced =(

    Thank you for sharing this with us.

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  34. Hi Minh! Just wanted to drop by and wish you a happy birthday. : ) I tweeted you about it, but I know you probably don't use Twitter that much. haha Enjoy this special day! And happy holidays!

    xx The Little Dust Princess

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  35. i'm not that talkative (so you won't really see me comment on blogs that much), but i do stalk like everyone. :) I just wanna say Happy birthday to you. Hope you have a really awesome saturday with your girlfriend Steph and friends!
    Best wishes to yah!
    Noriki

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  36. Minh....have a wonderful birthday!!!!!! Hope you are having a great day with Steph :)

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  37. Heard from Steph that it was your birthday so I came here to wish you a very happy 28th birthday.
    I'm sure she has a special surprise for you.
    Enjoy your day and best wishes to you.

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  38. Haaaappy birthday!!! :))
    Hope you are having a wonderful day!

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  39. happy birthday Minh! wish you the best 28th birhtday ever. Only 28 and you're a successful bankruptcy lawyer with your own firm your parents must be estatic! to accomplish so much at such a young age. I thought about owning my business but it seems so intimidating, kudos to you and Stephanie!

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  40. Now I see why my parents always encouraged me to save my money. Cause you never know when something may happen and it's always better to be prepared. My dad lost his job a while ago but since my parents save money, they still haven't had problems supporting us and paying my college tuition. Which I can appreciate immensely.
    I guess it does have to do with responsibility in an indirect way though. (just a little) Because when you try hard to save everything you can, you would have a buffer even if something did happen, like losing your job. I know it's not the case for everyone but I definitely learned a huge life lesson from my parents.
    PS, I really like these blog posts! I feel like I don't know a lot of the stuff I should, like the details of credit card bills and signing leases and stuff. These blogs help explain them in an understandable way :)

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  41. happy holidays !
    may you have a prosperous new year .

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  42. Thats interesting. Well what happens if you dont pay your medicial bills and it sent to a collector? lol. I'm real curious cause *ahems, situation here?

    Well besides that, thanks for the information. Happy late bday and happy holidays.

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  43. Medical bills are horrible, I actually work at a Doctor's office, and I can definitely see the toll that money has on patients, especially those that have emergencies and don't happen to have health insurance. If you don't pay the bills you are sent to a collection agency, and I always hate doing that since I tend to feel bad for the patients, but it is what needs to be done. Our office tends to warn the patient a few times before hand, if there is no response then we leave it up to the collection agency.

    I hope medical bills aren't hurting anyone else either =\

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  44. Just wanted to stop by to say hello & hope things are going well! Happy Holidays to Arrow Law Group family!

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  45. Thank you for this post. Bankruptcy has always been such an abstract thing for me, but it's incredibly informative and enlightening to read up on this - it'll help me avoid this kind of situation in the future.

    Also, that little explanation of your medical system is helpful. Our system is completely different, so it's interesting for me to compare them.


    Maria

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  46. This is so true! Like for instance, my husband (fiance at the time) had just got a job and they don't get health benefits until 3 months of being employed there... well 2 weeks before he got his health insurance he was in an accident and had to have surgery... needless to say it put him into about 5K into debt... it's not that he was irresponsible.. it was just bad timing!

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  47. Hmmm, I never thought that medical would be the number one reason why people are in debt. In Canada, it's "free".

    As for the second reason, must be hard to go through dramatic changes in life, I wonder what is the third reason...??

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  48. Yes health insurance is very expensive. I wasn't able to go to the doctor for 2 years because of my lack of income and no insurance. Things can get so rough. I feel like there needs to be a change in America when it comes to health care

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  49. Very well written Minh.I too just like many people who commented above was under the impression that most of us get into debt owing to excessive spending on items that we would always crave for.However,as you rightly pointed out that there might be many unforeseen circumstances which can lead you to debt and not just your spending habits.Some of the very predictable reasons are like loosing jobs,medical emergencies or might be a fateful accident that leads one to incur many medical expenses which can definitely lead one to borrow money in crisis and then inexplicably welcome debt in our lives.Hope that the government does something especially to help the people get rid of the debt incurred through medical expenses.

    Suzana Daniels
    Financial Writer
    http://www.ovlg.com/blog/author/suzana/

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