In an ideal world, we would all be able to buy what we need and want with the cash in our bank accounts. Unfortunately, that is not possible for the vast majority of Americans. As a result, most of us have to rely on credit facilities to make larger purchases – In fact, American consumers collectively owed about $14.5 trillion in debt by the close of 2020.
According to a recent Forbes report, the average amount of credit card debt owed by consumers was about $5,300 per person in 2020. Every time you charge something to your card, you pay interest on your outstanding balance. Oftentimes, consumers only make the minimum payment due and get stuck in a never-ending cycle of paying down debt and interest – never to actually be free of their financial problems.
It is very easy to find yourself in over your head with debt, but not so easy to get yourself out.
Even a small loan can leave you in a debt trap. This happens when you take a loan, but because your income does not increase in line with your expenses, you cannot cover your repayments. The only solution available to many people is to take another loan to cover the first loan payments. You can see how this situation can quickly snowball into financial distress.
How to avoid a debt trap:
If you have a structured settlement or annuity, you have the option to exchange your structured settlement payments for a lump sum to cover your outstanding debt. By paying off all your debt, you could save a significant amount of money in future interest charges and retain a good credit score.