In spite of people’s efforts to reduce their debt after the financial crisis in 2008, it is not uncommon for Wisconsin residents to struggle with what they owe. According to information from the Federal Reserve, Americans now owe $3 trillion in outstanding consumer debt. Additionally, American households with at least one credit card carry $15,950 in revolving debt. With an interest rate just shy of 19 percent and only making minimum payments, this amount alone could take a household up to 30 years to pay off.

If someone is beyond their ability to pay back their current debt, personal bankruptcy is an option, but there may be ways for people to take control over their debt before it gets to this point. One of the best methods to prevent overwhelming debt is to plan appropriately, specifically by setting money aside.

It is common for people to turn to credit cards when they lose their job, see their income reduced or run into an unexpected expense. The problem is that this can quickly rack up large amounts of debt, which grow into even larger sums as interest is added. Experts urge people to save money so that they do not have to use credit cards when a crisis occurs. While individuals may want to start small, such as by setting a monthly goal, it is recommended that they have three to six months of living expenses in savings.

In some circumstances, even with reduced interest rates and forgiven fees, people are not able to pay off their creditors in a realistic time frame. Filing for bankruptcy may be able to enable people to reduce their debt in a way that enables them to take control of their finances again.

Source: Fox Business, “5 Common Debt Traps and How to Avoid Them”, Alaina Tweddale, December 02, 2013