People struggle with debt due to a mix of high living costs, unexpected emergencies, and relying on credit to cover everyday expenses. Limited financial education and rising interest rates can also make it harder to manage or pay off debt.
Debt has become a serious problem for millions of Americans. Many people find themselves trapped in a cycle where they cannot pay off what they owe. This creates stress, damages credit scores, and makes it hard to get loans or credit cards. Understanding why debt happens helps people make better choices and find solutions.
The Size of America's Debt Problem
In early 2024, according to Statista, 28 percent of U.S. consumers said that their main source of personal non-mortgage debt were their credit card bills. This shows how common credit card debt has become. Despite the country's current low unemployment rate, the 2025 annual study found that 59% of Americans don't have enough savings to cover an unexpected $1,000 emergency expense, reports CBS News.
These numbers reveal a harsh truth that most Americans live paycheck to paycheck. When something goes wrong, they have no choice but to borrow money. This creates a pattern where debt keeps growing instead of shrinking.
Why Are People Struggling With Debt?
Rich people are often comfortable using debt as a tool to build wealth like buying assets, investing, or growing businesses. In contrast, many working-class individuals take on debt out of necessity, not strategy. They usually use it to cover rent, medical bills, or basic living costs, making it much harder to escape the cycle.
Let’s understand why many are struggling with debt.
1. Low Income Makes Debt Worse
People with low incomes face the biggest challenges with debt. When someone earns barely enough to pay for basic needs like rent, food, and utilities, any extra expense becomes a problem. Even small debts can feel impossible to pay off.
Low-income workers often cannot build emergency savings. They use all their money just to survive each month. When their car breaks down or they get sick, they must use credit cards or payday loans. These options have high interest rates that make the debt grow quickly.
Many people work multiple jobs but still struggle. The cost of living has gone up faster than wages in many areas. Housing takes up a large part of income, leaving little money for other needs. This forces people to rely on credit for everyday expenses.
2. Poor Money Management Skills
Many adults never learned how to manage money properly. Schools do not always teach basic financial skills. People make common mistakes that lead to debt problems:
- Not tracking spending each month
- Using credit cards for daily purchases
- Only paying minimum amounts on bills
- Not understanding interest rates
- Mixing wants with needs when shopping
Without proper knowledge, people make choices that seem good short-term but cause long-term problems. They might take cash advances from credit cards, which have very high fees. Or they might sign up for store credit cards without understanding the terms.
The Hidden Costs People Miss
Credit card companies make it easy to spend more than people can afford. They offer high credit limits and low minimum payments. This makes people think they can handle more debt than they actually can.
Many financial products have hidden costs that people do not notice until it's too late. Credit cards charge different rates for purchases, cash advances, and balance transfers. Late fees can be $35 or more. Going over the credit limit adds another fee.
Store financing deals often have catch periods. If people do not pay off the full amount before the promotional period ends, they owe all the interest from the beginning. These details are in the fine print that many people skip reading.
3. Limited Financial Education Creates Problems
Most Americans never received proper financial education during their school years. Only 21 states require high school students to take a personal finance course, according to the Council for Economic Education. This leaves millions of adults without basic money skills they need to avoid debt problems.
Financial education gaps show up in several ways:
- People do not understand compound interest and how it works against them
- They cannot create realistic budgets that account for all expenses
- They do not know the difference between good debt and bad debt
- They cannot compare loan terms to find the best deals
- They do not understand how credit scores work or how to improve them
What Schools Don't Teach About Money
Traditional education focuses on academic subjects but ignores practical life skills. Students graduate knowing algebra but not how to balance a checkbook. They understand history but not how interest rates affect their daily lives.
Even when schools offer financial education, the classes often focus on theory rather than real-world situations. Students learn about the stock market but not how to avoid credit card traps. They study economic principles but not how to handle collection calls or negotiate with creditors.
Parents often cannot fill this education gap because they never learned proper money management themselves. Financial mistakes get passed down through generations as families repeat the same patterns.
4. Unexpected Emergencies Create Debt
Life throws surprises at everyone. The most common cause of a financial emergency was a car repair, cited by 43% of those who say they've faced an emergency in the past six months. Home repairs and medical bills (both at 30%) and job loss (20%) were the next most common, according to LendingTree.
Divorce also often lead to significant financial challenges for individuals, along with college expenses.
Home Repair Emergencies
Home repairs can cost thousands of dollars without warning. A broken boiler in the middle of winter cannot wait for someone to save up money. The repair must happen right away to keep the family safe and warm. Fully 19 percent of Americans say they’ve taken on debt to cover the costs of unexpected home repairs, according to Bankrate. Boiler repairs often cost between $500 and $1,500, but full replacement can reach $5,000 or more.
Because these emergencies happen so fast, most people look for the cheapest repair option available. But choosing the lowest price often leads to backjobs, poor-quality work, and even more frustration down the line. That’s why it pays to choose a reliable service you can trust, like Best Boiler Repair Boulder CO, so the job gets done right the first time, without added stress.
Other expensive home emergencies include:
- Roof leaks that damage the inside of the house
- Plumbing problems that flood rooms
- Electrical issues that are dangerous
- Heating and cooling system failures
- Foundation problems that threaten the structure
In addition, homeowners spent an average of $2,321 on emergency repairs, reports NerdWallet. This amount is more than many people have in savings.
Medical Bills Add Up Fast
Medical emergencies create debt even for people with insurance. Emergency room visits, surgeries, and hospital stays cost thousands of dollars. Insurance may not cover everything, leaving patients with large bills.
Many people avoid getting medical care because they fear the cost. This can make health problems worse and more expensive later. When they finally seek treatment, the bills are much higher than if they had gotten help earlier.
On top of that, unpaid medical bills can be sent to collections. This not only adds stress but can also hurt your credit score and make it harder to qualify for loans, apartments, or even jobs.
Job Loss and Grief Can Trigger Financial Struggles
Losing a job can instantly wipe out a person’s income, forcing them to rely on credit cards or loans to survive. Even with unemployment benefits, it’s often not enough to cover essential bills like rent, groceries, and utilities. Over time, this debt snowballs.
Similarly, the death of a loved one can cause unexpected financial strain like funeral costs, estate-related expenses, and the emotional toll of grief often result in missed work or increased reliance on credit. These personal losses can turn into long-term financial setbacks, especially when there's no safety net in place.
5. Credit Score Damage Makes Everything Harder
When people struggle with debt, their credit scores drop. This creates a cycle that makes the debt problem worse. Low credit scores mean:
- Higher interest rates on loans and credit cards
- Larger deposits required for utilities and apartments
- Some employers will not hire people with bad credit
- Car insurance costs more
- It becomes harder to get approved for credit
How Credit Scores Drop
Credit scores fall when people miss payments or use too much of their available credit. Paying only minimum amounts keeps balances high, which hurts the score. Closing old credit cards can also lower scores by reducing available credit.
Collection accounts damage credit scores severely. When bills go unpaid for months, companies often sell the debt to collection agencies. These accounts stay on credit reports for seven years, making it hard to rebuild credit.
6. Loan Denials Force Expensive Alternatives
People with damaged credit often cannot get traditional loans when they need money. Banks and credit unions require good credit scores for personal loans. This forces people to use expensive alternatives:
- Payday loans with rates over 400% per year
- Title loans that risk losing their car
- Cash advances from credit cards
- Rent-to-own stores that charge much more than retail prices
These options cost much more than regular loans. They trap people in cycles where they pay fees repeatedly without reducing the main debt amount.
The Payday Loan Trap
Payday loans seem helpful because they provide quick cash. But the fees are extremely high. A typical $300 payday loan costs $45 in fees for two weeks. If someone cannot pay it back, they pay another $45 to extend it. This pattern can continue for months, with people paying hundreds in fees for a small loan.
7. Persistent Collections Cause Ongoing Problems
When people cannot pay their debts, collection agencies take over. These companies buy old debts for pennies on the dollar, then try to collect the full amount. Collection calls and letters create stress and embarrassment. You might even start getting repeated calls from numbers like 805-637-7243, which many people report as a common collection agency contact.
Collections hurt credit scores and can last for years. Even after people pay off collections, the accounts may stay on their credit reports. This continued damage makes it hard to rebuild credit and get better financial opportunities.
Debt Validation Rights
Most people do not know they have rights when dealing with collectors. They can request debt validation within 30 days of first contact. This forces collectors to prove the debt is real and accurate. Many collection accounts have errors or are for debts that were already paid.
Debt validation can help people avoid paying debts they do not actually owe. It also gives them time to review their options before making payments.
Settlement and Dispute Options
People struggling with debt have several options they may not know about:
Debt Settlement: Negotiating to pay less than the full amount owed. Many creditors will accept partial payment to close accounts. This works best for people who are several months behind on payments.
Disputing Errors: Credit reports often contain mistakes. People can dispute incorrect information and have it removed. This can improve credit scores quickly when successful.
Hardship Programs: Many credit card companies offer programs for people facing financial difficulties. These might include lower interest rates, reduced payments, or temporary payment delays.
Good Read: How To Deal With Keystone Collections Group During Financial Hardship
Credit Counseling: Non-profit agencies provide free advice on managing debt. They can help create payment plans and negotiate with creditors.
How Settlement Works
Debt settlement involves stopping payments to creditors and saving money instead. After several months, the settlement company negotiates with creditors to accept less than the full balance. This damages credit scores short-term but can resolve debts for less money.
Settlement is not right for everyone. It works best for people who are already behind on payments and facing serious financial hardship. People should understand all the consequences before choosing this option.
You might be interested: Ways To Deal With Multiple Collection Agencies Chasing You for the Same Debt
The Path Forward: Breaking the Debt Cycle
Understanding why debt happens is the first step to solving the problem. People need to:
- Learn basic money management skills
- Build emergency savings even if it's just a few dollars per month
- Understand their rights when dealing with creditors and collectors
- Know their options for dealing with existing debt
- Work to improve their credit scores over time
Debt problems did not happen overnight, and they will not be solved quickly. But with the right knowledge and help, people can break free from the debt cycle and build better financial futures.
The key is taking action before problems get worse. Credit repair companies like ASAP Credit Repair can help people understand their options and work with creditors to resolve debts. Professional help makes the process easier and can lead to better outcomes than trying to solely handling everything.
Many people suffer in silence because they feel ashamed of their debt problems. But debt struggles are common and there are real solutions available. Getting help early prevents small problems from becoming major financial disasters that take years to fix.