How to recognize and avoid debt traps

Approximately one in seven people (DE) in Switzerland lives in a household with payment arrears. That works out to about 14 people out of every 100. This shows that debt is anything but a marginal phenomenon.

Young adults are usually only just beginning their journey toward financial independence while facing new expenses at the same time: health insurance, taxes, their first apartment, consumer desires. If they don’t keep an overview of their spending or have basic financial knowledge, they can quickly overspend their budget. Incidentally, the difference between the genders is minimal – debt affects everyone to a similar extent.

Health insurance premiums are the most common cause of debt in Switzerland and often lead to debt collection procedures. Most of the time, they are underestimated or put off. And since premiums are due on a regular basis, the financial arrears can quickly add up.

Tip: A budget plan helps you consistently factor in premiums and stay in control.

In a similar way to health insurance premiums, people underestimate the amounts due or don’t set enough money aside. If you miscalculate your taxes by just a few hundred francs each month, you can easily find yourself several thousand francs in arrears by the end of the year.

Tip: Build up a financial reserve of about three months’ salary, and set aside money for taxes each month by setting up a standing order to a separate account.

"Buy now, pay later" apps and installment payments separate the moment of paying from the decision to buy – the mind no longer makes an emotional connection between spending money and the purchase itself. That’s how outstanding amounts accumulate faster than you might think.

A simple rule: Only spend the money you actually have at the time of purchase.

No, as long as you pay off the full balance by the end of each statement period. Then you can even take advantage of rewards and bonus programs. Things get tricky as soon as you start paying back in installments: that’s when you incur interest on the amount you owe.

Tip: Set a lower limit on your credit card until you’re on solid footing, or activate push notifications for your spending. Alternatively, a debit card works almost like a credit card, but the amount you spend is deducted from your account immediately.

It’s important to seek help early on. The longer you wait, the more expensive it becomes and the harder it will be to pay off the debt. Seeking help is not a sign of weakness, but the first step in the right direction.

Note: This video is not a substitute for professional advice. For information on what specific steps to take, always contact a professional service provider.