Unexpected Debts that Can Lead to Bankruptcy

Sources of Debt

1. A New Home

   Of course, buying a home comes with mortgage debt, which is to be expected. Where debt can start getting out of control, however, is when it’s time to move in, customize the home and/or make various fixes or updates in the process. A few hundred dollars for paint, a few thousand dollars for new furniture, etc. can quickly snowball into tens of thousands of dollars of debt. And this can be a setup for failure for new homeowners, especially if even just one more major thing goes wrong with the home and they need to borrow more money to make those repairs.

2. A New Job

   Although new employment should theoretically help people pull themselves out of debt, this can backfire when the job becomes a reason to spend. For instance, a new job may motivate some to purchase a new work wardrobe or even a new vehicle (if the job comes with a raise, for instance). If this spending occurs before the earnings start coming in – and if the spending is exceeding the earnings (or the job doesn’t last but the elevated lifestyle persists), again, people can find themselves entrenched in debt.

3. An Inheritance

   Similar to the new job opportunity, an inheritance (or some other type of significant financial windfall) can also cause people to incur debt when they overspend, rather than properly managing their funds. In fact, the real trouble can come when the overspending is one bigger purchase, such as vehicles or real estate. To avoid this pitfall, financial experts typically suggest only spending 1/3 of these types of windfalls (saving the other 2/3 for taxes and savings, respectively).

4. A New Mobile Device

   Believe it or not, staying connected can also put you into debt, especially if you are signing longer-term service contracts and you are not fully aware of all of the associated fees.