Dealing With Debt: 5 Reasons You’re Headed for Financial Ruin

It’s no secret that Americans are mired in record amounts of debt. The average credit card debt per household is $15,788, according to, an online resource center for consumers. “The root cause of the skyrocketing debt is interest rates, or accrued interest,” says Dr. Donald Reid, a Brooklyn-based certified financial planner. “Many people have no clarity on the actual real cost of money.” Where are Americans going wrong when it comes to dealing with debt and managing finances? Check out these five financial blunders that will lead you to ruin.

Not looking beyond teaser rates: Mortgages with low interest rates attracted many now embattled homeowners. Low interest and down payment offers make big item purchases — cars, homes, electronics — even more attractive. “It’s called a teaser [rate] or Adjustable Rate Interest,” says Reid. “I give you 1% for the first five years and at the end of that five years, it’s going to shoot up to 15%.” Before making a purchase, it’s important to get an idea of what the monthly payments will be once the teaser rate expires. Online calculators can give consumers an idea of future payments.

Failing to understand the business cycle: While economic growth is experienced over long periods of time, economies also experience periods of correction and expansion during the short term. In other words, for every boom, there is an economic bust that’s sure to follow.  “Banks were of the opinion that property values would go up ad infinitum,” says Reid, regarding the once booming housing market. “What we have right now is a correction.”

“It” can happen to you: Reid says that while many people saw others losing their homes and teetering on the brink of a personal financial depression, most people were still disconnected from their own reality: “A lot of people said, ‘It can never happen to me. That’s happening to those people out in Manhattan or on the other side of the country,’ and then they were hit with foreclosure.” Even with careful financial planning and management, unforeseen events are sure to arise. Whether it’s socking away $20 a week in a money market account, establishing contingency plans for financial stability in case of a job loss, or emergency medical expenses, plan for the unexpected. Remember, “it” can happen to you.

Staying mum on money: “Talking about financial security conveys a sense of financial insecurity,” says Reid. So instead of discussing finances, it’s politically correct to leave those issues behind doors, he adds. But that’s one reason many are currently in financial ruin. An open dialog with your spouse, partner, children, family and friends can help you gain insight into how you should manage your own money, and allow you to paint a realistic financial picture.

Personal conditions are not permanent: Whether you’re the CEO of a thriving enterprise or at an entry level position, one thing is constant–change. And it happens in a flash, says Reid. “If your job or your business goes south, guess what? The family is going south with you,” he says. But just as quickly as you can be thrust into a financial abyss, you can also gain the resources and tools needed to rise from the ashes. It’s important to understand that your job is not secure, and it’s wise to have other sources of income as well as your emergency savings. Steer clear of spending more than you make and practice living below your means — and bank the difference.