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Common Causes of Debt

These common causes of debt are sometimes the most overlooked

Debt. Few people like to talk about it or admit to having it. But the truth is that most households carry some form of debt, and the average credit card debt for families that carried a balance is about $5,700. And it’s not just the dollar amount that people don’t like to talk about: It’s how they got there.

But understanding the causes of debt is a crucial part of managing your financial health. Take the example of Carol. Throughout her 20s, she was able to save around $5,000 a year. In addition to saving this cash, she had a handle on planned expenses, such as vacations and a few new furniture purchases. But even the best-laid plans can fall short when you encounter new life stages and their accompanying costs. When Carol faced a few big-ticket expenses over the next decade, they took her by surprise, hurting her financial health. 

1. Children: It takes nearly $250,000 to raise a child in America

When Carol had her first child, she planned to use her savings to supplement the money from her annual salary she’d be spending on her child’s expenses every year. But some years cost more than she budgeted for, and when she had a second child, Carol sometimes struggled to manage her growing expenses.

This is not uncommon. A middle-income family can expect to spend almost $250,000 on food, housing, child care and education until a child turns 18.

That sum may look huge when you first see it, but it’s actually the result of very normal costs that add up for the average American family over time. And that number does not even include the cost of college.

2. Home improvements: Americans spend billions of dollars on their homes every year

One of the largest causes of debt for Americans remains home improvements. Americans spent about $359 billion making improvements to their homes between 2009 and 2011. That’s a median amount of $3,200 per year. 

Many homeowners choose to improve or repair their current housing rather than move elsewhere. For Carol, her children were in middle school when it started to feel like they were outgrowing their home. She decided to renovate and spent $5,000 to turn her basement into an additional bedroom. This wasn’t part of her short-term budget, even if in the long run the construction would save her money compared to a move. 

3. Health care: Medical spending is on the rise

Health care bills are increasingly costly for many Americans.

Part of the challenge with medical expenses is that these costs are often unclear upfront — even for those that are insured. Individuals needing urgent or emergency care are rarely provided with the cost of the treatment or procedures beforehand. Often, consumers only learn the cost of urgent or emergency care after they receive a bill or explanation of benefits from their insurance company.

The result is that patients are often surprised by what they owe for medical treatments. This is what happened when Carol’s son tore a ligament in his knee. The associated doctor and physical therapy bills had mounted to $6,000, which — in combination with her home improvement project — went beyond Carol’s projected costs for the year.

In this situation, Carol’s actual spending was starting to take a large turn away from her estimated financial plans. She needed to get a clear picture of her finances to decide how to manage the debt and make a plan to get back on track.

Get on the right path: It’s never too late to get a handle on your finances. Regardless of how you got into debt, if you take time to inventory your spending and look for lower interest options for paying down debt, you can start to put yourself back on the path to being debt-free.

Learn how you can simplify your debt with a debt consolidation loan

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.