5 Most Common Causes of Financial Distress

5 Most Common Causes of Financial Distress

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It is quite normal for consumers to experience financial distress. No one is spared from such a problem. Some people effectively overcome the situation, while others get stalled and are dragged into bigger troubles. It is important to identify the usual roots of those financial difficulties. Here are five of the most common causes of financial distress that are affecting consumers across the country.

  • Job loss

Anyone who has lost employment can agree that job loss is among the most common causes of financial distress. During the recent financial crunch, many companies were forced to fold up without any warning. Those who were affected were left with no choice but to deal with the ordeal. Many of those who received severance packages can still be considered as lucky for having an alternative income source that can even last for a very limited period. Those who did not receive such packages had to immediately find employment or another source of income.

  • Business failure

Self-employed individuals can meet financial distress after a possible business failure. Their income depends on their entrepreneurial skills and the overall condition of the market. Without any solid or effective business contingency plan, the loss of business may also translate to income loss. Business failure can be temporary or permanent. If the business completely folds up, there is a need to move on and find other sources of income after the failure.

  • Severe and unexpected illness

People without proper insurance coverage can be at great risks. If you do not have ample insurance to cover a sudden cancer diagnosis, you may have to rely on a 60-day cash reserve. Illnesses can lead to very high medical debts and possibly loss of income especially during recovery. The importance of disability and health insurances can never be overlooked as those can help spare yourself from possible financial distress following severe illness.

  • Death of a family member

Death of a spouse or a family member who is the principal breadwinner can be financially devastating. A good insurance coverage can serve as a protection for all parties involved. If the family member is not the main income earner, the result can still be devastating enough to pose rippling effects to your productivity and potential to earn income. One way or another, death of a family member can bring about possible financial distress.

  • Too much debt

Of course, accumulation of too much debt will spell trouble. Existence of too many debts can be financially crippling because all those products incur interest payments. Worse, many lenders impose many other penalties and charges. Keeping debts can be very costly. The longer those are kept, the more expensive those become.

To overcome financial distress, it is always best to pay particular attention to all these causes. Eliminating these problems is synonymous to eliminating the sources of financial distress. It may not be too difficult to overcome each or all of these. Financial discipline is usually a key.

Andrew has been working in the debt consolidation industry for several years helping people in financial distress. Aside from work, Andrew is also a regular blog and forum contributor, who enjoys helping others and sharing his opinions.

Image credit: Images of Money (flickr)

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