9 Facts About Your Debt You Probably Won’t Believe

Even the savviest among us might feel clueless at times when it comes to debt . It’s tricky — there are many different kinds and each might require a different approach when it comes to successfully managing it.

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John F. Pace, CPA and tax manager for Pace & Associates CPAs , said many people might not know a few important things about the debt they carry.

“As a CPA with over 40 years of experience, I’ve seen numerous surprising facts about personal debt that many people might find hard to believe,” he said. “One such fact is that the average American household carries over $137,000 in debt, despite the median household income being much lower.

“This high debt-to-income ratio can lead to severe financial stress and instability, and it’s often exacerbated by the use of high-interest credit cards and personal loans.”

Below, experts outline a few facts about your debt you probably aren’t aware of .

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Student Loans

“Another eye-opener is the impact of student loans, which have ballooned to over $1.7 trillion nationally,” Pace said. “I once worked with a family office for a Forbes 400 family where we had to strategically manage student loan debt for their beneficiaries.

“It’s astounding how many individuals are unaware of the benefits of income-driven repayment plans or loan forgiveness programs. Many make decisions without fully understanding these options, accumulating unnecessary interest and prolonging their financial burden.”

On that note, Adam Garcia, financial expert and founder of The Stock Dork , noted that people may not know that student loan forgiveness isn’t always free.

“Although there are programs on student loan forgiveness, most often are associated with gentle hooks attached to it. For instance, taxable forgiveness implies that in future, you will be required to part with income tax on that amount of forgiveness,” he explained. “Expect this as a twist in your financial day.”

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Medical Debt

“I’ve noted a significant increase in debt from medical expenses,” Pace said. “Healthcare bills can be devastating; in fact, medical debt is a leading cause of bankruptcy in the U.S.

“While working at U.S. Trust, we managed numerous fiduciary accounts where unforeseen medical expenses drastically altered financial plans,” he said. “It’s critical to plan for such contingencies by having an emergency fund and adequate insurance coverage.”

According to Pace, understanding these aspects of personal debt can help individuals take proactive steps to manage their finances more effectively.

“Leveraging expert advice and being aware of financial tools and strategies can mitigate the impact of such debts on one’s financial health.”

Garcia also said that it’s important to note that medical bills that accumulate significantly deter your credit rating.

Contrary to the expectations, he said unpaid bills in the form of unpaid medical bills are worse for credit than credit card debt.

“In any case, one must negotiate with charging healthcare centers and look for payment options.”

The Debt Snowball Method Works

Garcia noted that the debt snowball method, where smaller debts are paid first, can work for one very important reason.

“[I]ts effect on the psychology of any issue is immense,” he said. “Goals bring out the best out of you and also you need not forget that small triumphs should be enjoyed so that you can face more difficult accounts.”

Stay Informed About Debt Collector Tactics

According to Garcia, the collectors can be very pushy when it comes to ensuring that the obligors pay back their debts.

“Some employ the psychological method of extorting money; they can call at any weird time, take lawyer-like actions, or even embarrass you to get their money.”

He urged people to learn about the basic consumer’s rights under the Fair Debt Collection Practices Act.

Zombie Debt

“Even if you have not learnt about zombie debt before, you must have probably come across it somehow in your life,” Garcia said. “It is overdue that it was beyond the statute of limitations that allows a creditor to collect the dues through legal means.

“Nevertheless, there are always people interested in collecting it. To avoid what comes next, check the authenticity of the debt first before paying.”

Debt Can Be Good

“According to the topical information, not all debts are always bad,” Garcia said. “Debt is not necessarily bad, for example, a strategic debt like a mortgage or student loans is actually good.

“Here’s why: Mortgage enables a person to own a house but in installment instead of buying it at once. House prices always increase, usually to the common advantage of the owners hence the investment increases,” he explained.

“Also, the interest on mortgages is generally allowed as an expense for the accounting period.”

Similarly, Garcia noted that when it comes to incurring student loans, it can be a wise investment.

“Education is one of the best things that you can do that will offer you long-term benefits in the future. A student loan helps you to pay for your college education so that you may attain a better-paying job for instance.

“It is actually important to borrow, cautiously, and towards the acquisition of the right degree that will place the individual in the right line of business,” he said.

Credit Card Conundrum

Credit cards can be a great convenience, said Kevin Huffman, personal finance specialist and owner of Kriminil Trading .

“But they can carry a heavy price tag … with interest rates often north of 20%, even small balances can balloon in a hurry, creating a trap for many card holders.”

Payday Loan Trap

“Billed as handy stopgaps for financial shortfalls, payday loans are often predatory,” Huffman said. “The effective annual percentage rate (APR) on the average payday loan is currently higher than 400%, according to the Consumer Financial Protection Bureau.

“This invites a cycle of indebtedness, in which borrowers take out new loans in order to pay off old ones.”

The Generational Divide

According to Huffman, debt is not distributed evenly.

“Those with [less] purchasing power — millennials — are carrying hefty debt loads.

“They bear the burden of millions of dollars in student loans and have higher costs of living than earlier generations,” he explained.

He said these statistics continue to confirm that the debt epidemic that people and families are dealing with is a harsh state of affairs.

“If you are experiencing a crisis with your accumulated debt, please know that you are not alone in this. It would be wise to engage with a qualified financial specialist who can tailor a debt management plan for you and help relieve you of your financial problems. Don’t delay in reaching out for expert assistance.”

This article originally appeared on GOBankingRates.com : 9 Facts About Your Debt You Probably Won’t Believe