What Causes Debts?

Knowing the cause of debt may help you understand ways you can avoid personal insolvency. There are many reasons that people get into debt, and this can be a problem if you lose control of your debts and face bankruptcy. However, owing money is commonplace, with 77 percent of U.S. families in some kind of debt in 2007, according to census.gov. Many debts are controllable with regular payments and won't necessarily lead you to insolvency.

Medical Bills

One way in which people may find themselves in debt is if they cannot afford to pay medical bills. In 2007, 62.1 percent of U.S. bankruptcies were due to medical debts. This is according to a study conducted by researchers from Harvard's Law and Medical Schools and published in the "American Journal of Medicine." Lead author David U. Himmelstein and his colleagues found that the proportion of insolvencies to which medical debts had contributed increased by nearly 50 percent between 2001 and 2007. This type of debt appears to hit the middle classes hardest, as the study revealed that most of those who had declared bankruptcies due to medical debts were educated homeowners with middle-class jobs.

Credit Cards

Not paying off credit cards can allow debt to build up. The inability to keep on top of credit card bills is often caused by people living beyond their means. If you buy items you cannot afford on plastic, it can become difficult to pay off your credit card balance -- this is one way in which debts can be accrued. This can also lead to insolvency, although many people can owe money on their card but pay it off frequently enough to never find themselves in financial difficulty. According to government statistics, 46.1 percent of U.S. families were holding credit card debts in 2007, with the median average owed at $3,000.

Loans

Taking out a loan can be a useful way of paying for an expensive item you would find it difficult to save for, such as a car. This kind of debt can be easily manageable by paying the amount back to the lender in installments, sometimes for a number of years. However, as with any kind of debt, people who fall behind on their repayments could find themselves in financial difficulty. Government statistics show that 46.9 percent of U.S. families had installment loan debts in 2007, with the median average amount owed standing at $13,000.

Mortgages

A mortgage is the most common debt. In 2007, government statistics show that 48.7 percent of U.S. families owed money on their primary residence and 5.5 percent held debt on other real estate. The median amount of debt owed on the family home was $107,000. Although this may sound like a lot of money, most people with home loans do not fall into insolvency as mortgages are usually subject to a structured and affordable repayment scheme.