Although the U.S. economy is now going stronger than it has been in a long time, not everyone is benefiting from the economic recovery. In fact, many Americans continue to live in a situation that qualifies as “paycheck to paycheck,” in which they do not have any savings or financial cushion to protect them in the event of unforeseen circumstances.
While this situation is quite common, it carries with it several risks that can have difficult outcomes. If you find yourself living paycheck to paycheck, it is important you understand the risks and consequences of mounting debt so you can better understand your options. If you know the risks surrounding debt, you have a better chance of preparing for the potential consequences.
Financial difficulties and debt
When you only have enough money to make it to the end of the month before your next paycheck comes, there is no room for error in your budget. That means any unexpected expense could cause you to fall behind on your regular bills. Forbes reported that nearly 80 percent of American workers live paycheck to paycheck. This included nearly three in four workers who said they are in debt.
When unexpected expenses crop up, you may turn to a credit card to pay for these costs. If you accumulate a significant amount of credit card debt and you unable to make your monthly payments, the problem can quickly snowball. Missed payments carry heavy fines, and interest charges begin to mount. Many people in credit card debt find themselves unable to catch up. Once collections agencies start to call, the stress can quickly become overwhelming.
Options for debt relief
Many Americans who were once in significant credit card debt have turned to bankruptcy as an option for a fresh financial start. Although some people claim bankruptcy is an option that will ruin your financial future, it is often the case that just the opposite is true. For many people, bankruptcy is the first step to rebuilding their finances. It stops collections agencies from calling and can eliminate unsecured debt, such as credit card debt. Once that debt goes away, you can start over and build a stronger financial future.