Everyone knows what bills to expect every month for the most part. For example, if you have rent, a car payment, and a credit card you use for expenses, you can expect to pay your landlord, car note and any charges made to your credit card.
But even if you have a good handle on your budget, there are four kinds of debt that can catch you off-guard. Let’s take a look.
Look out for these unexpected debts
1. Medical bills
Unforeseen medical debt is a big cause of financial stress. The average American already spends $10,000 per year on healthcare, according to Debt.org. Add in any surprises and it could be hard to regain your financial footing after an unexpected illness or visit to the doctor.
And now with the Covid-19 virus in full effect, it’s the last thing many folks need on top of lost jobs or cut hours.
If you’re in a bind and still need medical attention, talk to your provider and explain your situation. And keep in mind that since the National Consumer Assistance Plan (NCAP) was launched in 2015, credit agencies have a 180-day (roughly 6-month) waiting period before medical debts will appear on your credit report. That should give you some time to negotiate and potentially repay your bills.
2. Car repairs
When you depend on a vehicle to get you to and from work every day, the last thing you need is to have a breakdown or other repair. And auto repair shops want to get paid right away before you can get your car back.
If you find yourself in this position, see if you can shop around to find a mechanic who will offer you the best price and most transparency so you can get on your way with as little expense as possible.
Keep in mind, regular car maintenance can often prevent costly breakdowns and repairs down the road. It’s much easier to address small problems early before they turn into big ones.
3. Missed minimum payments
If you have a credit card, keep a close eye on when the monthly minimum payment is due and the amount.
Even the most prudent budgeter can accidentally miss these details, especially if a payment is due between pay periods.
And if you make a payment, be sure you’re covering the minimum. For example, if you send a $25 payment, but the statement cycle closes with a minimum due for $40, it will still be considered past due even though you made a payment.
And one more thing. Even if you have your payment on autopay, be sure to check it every once in a while to make sure they’re drafting your account correctly. On that same note, make sure to have available funds in your checking account. That way you won’t also get hit with an overdraft fee from your bank.
4. Forgiven student debt as income tax
If you have a job that forgives student loan debt, like with a federal agency or as a public worker, seeing your balance go down can feel like a huge relief.
But keep in mind, the government views this forgiven debt as taxable income. That means your adjusted gross income (AGI) could go up and push you into a higher tax bracket, causing you to owe more money. This is especially important to remember if a large chunk of your student loans are eligible for forgiveness.
It’s good to know this information so you can plan your taxes ahead of time and avoid potentially owing more taxes than you originally thought.
Unexpected debt is a big reason to have an emergency fund or extra cash in a savings account. Four of the most common unexpected debts are:
- Medical bills
- Car repairs
- Credit card and overdraft fees from payments due
- Extra income tax because of canceled student loans
There’s not much you can do about unexpected debt other than deal with it when and if it happens. After all, that’s why it’s unexpected. The best thing you can do is take precautions and be as prepared as you can possibly be.
If you find yourself needing extra cash, consider opening a line of credit with Echo Credit. Click here to see if we can help.