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5 common debt traps and how to avoid them

Consumer debt may have receded a bit immediately after the financial crisis of 2008, but today Americans have heightened the amount of outstanding consumer debt to more than $3 trillion, according to the Federal Reserve.

Want to sidestep this dangerous trend? Here are the five of the top debt traps Americans face and how you can safeguard yourself from them.

1. Job loss

The unemployment is steadily improving, but the level remains solidly above 7 percent. According to Patricia A. Hasson, president and executive director at Clarifi, a non-profit consumer credit counseling service, unemployment or underemployment is the No. 1 reason people seek financial counseling.

Safeguard: Having an emergency savings fund totaling three to six months' living expenses can help bridge the gap between jobs, if necessary, or temporarily buttress lower wages from underemployment. "The task of saving an entire six months worth of expenses can be daunting," says Hasson. Instead, she suggests savers start small and take it step by step. "Pick an amount you can save each month and have a clear dollar goal in mind. Even better if it can be set up through an automatic transfer."

2. Medical costs

The costs of an unexpected illness can be debilitating, even for those with health insurance. More than 20 percent of Americans currently struggle with health care expenses, and medical costs are now the leading cause of bankruptcy. According to Christina LaMontagne, vice president of Health at NerdWallet, "Insurance is no silver bullet. Even with insurance coverage, we expect 10 million Americans will face bills they are unable to pay."

Safeguard: It can be tempting to choose lower health coverage to bring down a monthly premium. Those with chronic health conditions or medication needs, however, should consider a more robust plan. According to LaMontagne, millions forgo needed medication to mediate costs and, as a result, can face substantially higher emergency and ambulatory costs. In the end, prevention can be a much cheaper alternative.

3. Credit card overuse

When expenses go up but income doesn't, many turn to credit cards to bridge the gap. The average American household with at least one card carries almost $15,950 in revolving debt. Assuming a 18.9 percent interest rate and a minimum required payment of 2 percent of the balance, it could take over 30 years to pay that off, including a staggering $46,000 in interest payments.

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