Medical Debt No 1 Cause Of Filing for Bankruptcy

Medical debt is the leading cause of filing for bankruptcy in the United States. Medical debt can be accrued in a number of ways, but is most often due to a lack of proper health insurance or unforeseen medical conditions and emergencies that are not adequately covered by insurance policies. With the advent of the Affordable Care Act many people are hoping that this trend will not continue, but as of right now it remains a very real and pressing concern for millions of Americans, many of whom are faced with overwhelming debt and unsure where to turn.

Reasons for Medical Debt

A recent study showed that 62% of households facing major debt cited medical debt as a big part of their problem. These debts come in the form of unexpected emergency room visits, which can be expensive even if a person has health insurance and are prohibitively so if the person does not. They also come in the form of dental work, which is a separate kind of insurance not generally covered by basic health plans. Dental work can easily run into the thousands of dollars, and is the kind of work that, when needed, is absolutely needed ASAP.

Another huge factor in outstanding medical debt that gives people thoughts of filing for bankruptcy is the out-of-pocket costs of prescription medications. Prescription drugs can cost an arm and a leg, and are notoriously difficult to get covered under typical health insurance plans.

Health conditions that lead to skyrocketing debt are generally related to obesity and to the effects of age, and those suffering from such conditions and the associated debts are filing for bankruptcy at an increasing rate.

Another worrying statistic in the study is that households already saddled with medical debt are less likely to seek treatment when needed, wishing to avoid further debt burden and filing for bankruptcy.

In addition, even after filing for bankruptcy, which can clear giant chunks of unsecured debt, many people are afraid to go in for new treatment, since they likely would still not have proper insurance and would not be able to discharge new medical debt for several years after the initial discharge.

1.7 million people will be filing for bankruptcy due to medical debt this year, the study estimates. Luckily the protections offered by filing for bankruptcy are strong and able to discharge most of the debts incurred by those suffering from poor health or accidents – but the larger issue is that poor health and accidents are a reality of life, and it feels like something is inherently wrong when a system fails to account for these realities in a meaningful way.

The P.R. Smith Law Group aims to help local residents resolve their debt issues and achieve a financially healthy future. They provide high quality legal representation that helps lower monthly debt payments, stop wage garnishment,prevent foreclosures and repossessions, and stop calls from creditors.

This Budget Really Gets Results

Most budgeting programs consider only what we’ve spent, and this uses prior spending history for making current spending decisions. If my earlier spending habits were not successful there isn’t much reason to let those habits guide current money decisions.

I now use zero sum budgeting and it allows me to make today’s spending decisions based upon today’s needs. By making on the spot adjustments during the spending cycle or month, I have greater control over my cash management.

Zero sum budgeting allows me to move dollars from one budget group to another in real-time. For instance, if I have set aside $500.00 for groceries in a month but find I’m going to need more in that account several weeks later, I can make an easy adjustment.

As example, the Grocery budget can increase by $100.00 at any time by moving dollars from another group like Dining Out (take out $100.00) and adding them into the food group (add $100.00). Of course, Dining Out now has $100.00 less, but more importantly the Grocery budget will still be in check.

Some people may say this is like the old adage, “‘I’m robbing Peter to pay Paul”. But this isn’t robbing one group to pay another. It is a budget decision to dine out less this month and have needed money to spend on groceries.

My budget groups are common ones like Grocery, Utility, Rent, Auto Expense (fuel), Insurances, Credit Card, Savings, and others. The flexible ones are Dining Out, Clothes, Entertainment and Pocket-Money. Using several month’s checking account debits gave me a good idea for categories to use.

Here are three easy steps for follow to for using this method:

Budget Every Dollar of Income Until You Reach $0.00

Begin the process by loading money into all groups where the dollars will buy current month necessities. Examples: rent, insurance, credit card debt, other loans, groceries, and utilities.

Identifying categories that have a fudge factor creates flexibility. These could be household goods, fuel for cars, clothing, charitable, savings, others. Finally, dollars go into areas like cash for emergencies, dining out, entertainment, and pocket-money.

The goal is to commit all dollars in your checking account on the first day of each month until $0.00 are left. When new income enters during the month, add this into the budget until it equals $0.00 dollars.

Make Your Budget Flexible

I begin the first day of a month with my checking balance and call it Money Available. Each dollar is given a job in my budget until I run out of available money to distribute. Budgeting every dollar of income is putting money to work where it’s of most benefit.

It also accounts for those current dollars that are committed to later bills, like auto-debited insurance premiums. This builds flexibility since I won’t make the mistake of thinking all the money in my checking balance is to spend.

I can increase money in any group that needs it by moving dollars from a group that hasn’t been tapped as much. Actively working my budget groups keeps me from over spending.

Golden rule: never overspend a group to red ink or negative dollars!

Build A Cushion

Save dollars each month! Do not feel that you have to spend every dollar in every group each month.

Build cushion each month, regardless how small it is. Eventually you will pay current month’s bills with last month’s income. As far-fetched as this may seem, it is true and it will happen. Check this video for a demonstration.

Just keep actively making budget decisions each week. The flex groups give fudge room for other groups. Don’t overspend any group and don’t spend just because groups have dollars left at month’s end.

It takes time to build a full month’s cushion. The only way to do it is by managing income and keeping the budget balanced throughout the month.

Remember this old saying, “mighty oaks from little acorns grow!”

Finally, I always found that curtailing my spending habits was never quite enough to allow me to reach personal goals. I could live frugally and still not get ahead of the game so to speak. Zero sum budgeting is a good way to get out of debt and live each month with a healthy cushion.

I have been an active investor for over 35 years. With the exception of employer sponsored retirement plans, my investments have always been self directed. My preferred investment style would fall into the value with dividend growth and income method.

I have also had a lifelong interest in personal finance and have taught community classes to a varied of groups.

Investment experience in Equities-REITS-Oil & Gas Royalties-Utilities-Varied Fixed Income.