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The Surprising Reason Why People Get In Debt

Scooby Dooby Doo, Where are you? We’ve got some work to do now.

Ruh-roh! Are you in debt? It’s no mystery that you’re not the only one. Nerd Wallet reports that the average American household now has credit card balances averaging $16,061, with a total debt including the mortgage of $132,529. So, how can you prevent those numbers from getting higher? Remember how in the Scooby-Doo episodes, the gang would remove the monster mask and reveal who the true culprit was? Maybe it was who you thought it would be, or maybe you were surprised. Even though each case was different, the mystery could always be solved. The same thing can be said about the surprising reason why people get into debt . . .


One of the first rites of adulthood is getting that first credit card. Usually, these cards come with a credit limit to minimize the amount of trouble that you can get into. The same kind of concept is used when we apply for car and home loans. If you’re not making enough income, then your application for the loan is denied. Or, is it? What happens when you don’t make enough money to comfortably afford the payments for the items you really want to buy? Consider the following true story: In 2008 John and Luiza needed a reliable vehicle to get to their jobs. They were planning to get a used car, but they didn’t have much in savings and were worried about costly repairs. The new 2007 models that didn’t sell were being offered at greatly reduced prices and the salesperson gave them a deal they couldn’t pass it up. Still, it was a little bit more than they could afford. John and Luiza applied for a loan with their credit union and they were denied. Disappointed, they called up the dealership and explained that they didn’t get the loan with their bank and so they would have to shop around some more. “Oh, don’t worry!” said the dealership. “We have our own loan department. We can get you approved!” And they did.


John and Luiza were thrilled to have a new car, but the payment terms offered by the dealership made things tight. Every bit of their paycheck went toward bills. They expected that their careers would continue on an upward trajectory and so at first they weren’t worried. They didn’t stress about making the car payment every month and they didn’t worry that they weren’t putting anything toward savings. Then the water heater broke and flooded the basement and they had to charge that expense on their credit card. Everything also started to get more expensive. In order to make their car payment, they started putting things like gas and groceries on their credit card. By the end of three years, they had maxed-out Luiza’s credit card, were barely making the minimum payments on John’s credit card, and their mortgage payment was late. That’s when they realized they were in trouble. It’s getting more and more expensive to maintain the typical American lifestyle. Owning a home, getting to and from work, and paying the bills is one thing. Raising a family, maintaining a social life, and trying to save for retirement is another. Since 2003, the average U.S. household income has increased by 28%, but the cost of living has gone up by 30%.


Just because you get approved for a loan or a credit card or a mortgage doesn’t mean that you should say yes. The terms might not be in your best interest. It might feel great at first to get the dream home or the dream car even if it is “a little bit more than you can afford.”  But in the end, if the payment terms don’t also allow you to pay the bills AND put away an amount toward emergency savings AND save for retirement, then you’ll likely end up in the same downward spiral as John and Luiza. The real monster in the room might not be the consumer who can’t say no, it might be the credit departments who are all too eager to say yes. They only stand to gain from your debt. Pull off the mask and face your monster. The only way to avoid debt is to spend less than you make, not everything that you make. John and Luiza ended up selling their new car to refinance their entire situation. They took out a personal loan that rolled their credit card debt and car loan into one payment with a much lower interest rate and a monthly payment they could afford. They are still making those payments, but they have also started an emergency fund and they are saving for retirement. We, at Annuity Gator, have no affiliation with credit card services, nor do we give out loans. But if you have a question about income planning, an annuity, or a life insurance offer that seems too good to be true and you want to know what’s what, then contact us today or give us a call at (888) 440-2468. We’re always happy to help someone improve their financial standing. How To Enjoy Your Spouse Now & Plan For Later

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