When are you considered overindebted?
You often only realize how quickly you can end up in the red when your account is already in the red and the outstanding bills are piling up on the kitchen table. If you wait too long to pay off your debts, it's almost impossible to get out of the debt spiral without outside help.
When am I in debt? What is over-indebtedness?
If you have taken out a loan and repay the installments on time, this is not a precarious situation. You may be in debt, but your livelihood is not at risk.
However, if you are unable to pay the agreed installments, this is referred to as over-indebtedness - i.e. whenever, after deducting rent, electricity and the costs of daily living, the remaining money is permanently insufficient to meet further payment obligations.
If this happens, you should react quickly and visit a debt advice center. If you don't do this and more and more debts accumulate, there is the threat of reminder proceedings and compulsory enforcement.
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Over-indebted through no fault of your own: Unemployment, divorce, illness
Over-indebtedness can occur completely "through no fault of your own". The "classic" reason is sudden unemployment. But divorce and separation are also among the most frequently cited reasons why people are suddenly no longer able to support themselves.
Maintenance costs can be particularly significant after a divorce, and monthly payments for former partners and joint children can quickly lead to costs that are difficult to control. However, long and serious illnesses are also cited as a cause of over-indebtedness.
Young people often have money problems
Careless and too relaxed handling of money often leads to ending up in the red. Young people in particular have money problems.
Over 37,000 people between the ages of 20 and 25 sought debt counseling in 2016. On average, they had debts of around 7,500 euros according to the Federal Statistical Office (statistics on over-indebtedness of private individuals, 2017). For many young people, the outstanding cell phone bill alone amounts to several times their monthly income.
The cause of over-indebtedness among young people is explosive. While adults usually accumulate more and more debt due to unemployment, separation or illness, young people tend to have "inefficient household management". In other words, they simply consume too much. Contracts with gyms, subscriptions, shopping for clothes online, spending money on computer games: Very few young people are prepared to deal with money.
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How can I avoid debt?
Once a person or household has fallen into over-indebtedness, it is difficult to get out of the debt spiral again. At some point, more and more bills and reminders start arriving. Creditors, debt collection agencies and bailiffs try to collect money.
It is best to take the initiative as soon as you notice that you are slipping further and further into the red and can no longer pay outstanding bills:
- A budget book helps you to get a better overview of your monthly income and expenditure.
- Think about where you can cut back on expenses (e.g. only two weeks of vacation instead of three), check whether you still need certain contracts, insurance policies and subscriptions, etc.
- Seek out a debt counseling center that will help you identify the causes and reasons for your debt, work with you to create a budget plan and develop a strategy to gradually reduce your debt.
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