Financial Distress – Understanding The Main Causes

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People seem to be more and more concerned about money these days.

What is Financial Distress?

Financial distress refers to the inability of people and companies to meet their financial obligations.

In fact, a survey from said that 50% of people making between $25,000 and $75,000 tend to “worry a lot” about their finances. With bankruptcies and foreclosures rising at double-digit rates, it’s no wonder many are in financial distress .

But what are the top reasons that cause financial distress? According to information gathered from many other credit counseling agencies across the country, the top five causes are:

  • Reduced income, same expenses. Some families are seeing two incomes turn into one, or some people are forced into taking lower paying jobs after a layoff. Whatever the reason, expenses have to be adjusted to your new reality. Hoping things will change will just get you into trouble.
  • Medical Expenses. Lack of health insurance, reduced income during illnesses, and costly medical procedures make getting sick a very costly situation.
  • Little or no savings. If you have no savings, you don‟t have a “safety net” if the unexpected happens. Savings will help you get through a job loss, divorce, or illness. The old adage “pay yourself first” is truer today than ever.
  • Divorce. Half of married couples do it - some more than once. And there is nothing that will cause financial problems faster than divorce. In fact, the bankruptcy rate for unmarried mothers is three times that of the general population.
  • Poor money management. Regardless of your situation, the lack of a financial plan and budget can lead to problems. You might be spending hundreds of dollars unnecessarily every month.

By understanding the main causes of financial distress, you can start to make plans to address them.

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