What's causing your debt—and why you should get it under control

Maybe your American Dream involves a college education, or a safe and comfortable home for your family. Perhaps you’d like enough cash to afford monthly expenses, and even a little bit left over to put into savings or towards a vacation.

For many of us, however, achieving an American Dream means taking on debt. Investing in education or a home is a great way to build personal and financial equity, of course, but if you rack up too much debt doing so, you can put your finances, property, and even your health at risk.

The sources of Americans’ debt

So, what’s causing our debt? There are a few well-known sources, like college loans, but some other common expenses might surprise you.

Your home

Housing is the largest monthly expense for many people, according to the United States Bureau of Labor Statistics. Investing in a home is a great way to build financial equity. But if you can’t afford your mortgage, home insurance, and taxes each month, you can hurt your credit score and risk losing your home, too.

As a rule of thumb—whether you own or rent—try to spend no more than 30 percent of your income on housing. This should leave you with cash for other expenses, like food, utilities, transportation, childcare, and savings for your emergency fund at the end of each month.

Your education (or your kids’)

On average, U.S. workers with a bachelor’s degree make hundreds of dollars more each week than workers with a high school diploma. Over the long term, these kinds of differences add up. People with college degrees will earn approximately $1.2 million more over their lifetime than those without a college degree, according to the Association of Public and Land-Grant Universities (APLU).

Many graduates, however, have to take out student loans to earn those degrees. That’s why it’s so important to consider how borrowing will affect future finances—for parents saving up for their kids’ college funds and for students taking on their own loans.

Before taking out a loan, be sure to assess the type of school you’ll be paying for (public vs. private) and the planned area of study (a high-paying degree vs. a lower-paying degree). These two factors will help you determine how much student loan debt is just too much, and whether you’ll be able to pay it back comfortably.

Your medical expenses

Even for those with health insurance, planned and unplanned medical expenses can be expensive—and costs are only climbing. Plus, benefit coverage and the cost of care can be confusing or unclear to many people—especially in emergency situations—resulting in substantial, unplanned expenses.

So, how should you handle a major medical bill? Having an “emergency fund,” or at least three to six months’ worth of living expenses saved, can help offset surprise medical costs. Alternatively, many hospitals and healthcare providers’ (HCP) offices will work with you to develop a monthly payment plan based on your income.

Your kids

Raising a child in the U.S. costs a middle-class family more than $280,000, not including the price of college. Between housing, food, education, childcare, and other everyday expenses, providing the basics can add up. Unexpected expenses or having multiple children can greatly raise that figure.

The solution? You can try to develop a family plan and stick to it, but of course, not every addition to your family is planned. That’s why it’s important to have a solid savings base and adhere to your monthly budget.

Your home improvements

Home improvements are a source of debt for Americans simply because it’s easier and more affordable to improve and repair current housing than it is to find new housing altogether. Unexpected expenses like a broken air conditioning unit or hot water heater can add to that cost. Even if substantial home improvements aren’t in your short-term (or even long-term) financial plans, setting aside a few dollars each month towards them can help offset the costs.

Debt doesn’t just hurt your credit score

You may know taking on too much debt can result in a lower credit score, home foreclosures, and the repossession of cars and other belongings. But did you know poor finances can affect your health, too?

Most people in the U.S. feel stressed about money, according to surveys by the American Psychological Association (APA). Financial concerns like excess debt can affect one’s general health in the following ways.

Increases daily stress

Not only can everyday stress contribute to depression and anxiety, it’s been linked to cardiovascular issues (such as heart attack, stroke, and high blood pressure), as well as problems with the gastrointestinal, endocrine, respiratory, nervous, and reproductive systems.

Affects treatment for health issues

A 2022 Gallup study found that 26 percent of Americans report delaying or avoiding medical care or purchasing prescription drugs simply because they could not afford it. Because patients aren’t seeing their providers, health conditions may be going untreated—or undetected entirely.

Affects relationships

Money is a common cause of conflict in relationships, and many couples report it as a central source of tension. Conflict with a partner can increase stress levels, which may strain the cardiovascular, nervous, digestive, and endocrine systems.

The bottom line? Avoiding too much debt can set you up for a solid financial future—and help protect your mental, emotional, and physical health. The key is to develop an attainable, sustainable financial plan that can help you keep your money goals on track.