financial distress
A condition where income or assets are insufficient to cover financial obligations, threatening solvency.
Example
“Financial distress signals include paying bills with credit cards and borrowing to make minimum payments.”
Memory Tip
DISTRESS — the alarm is going off. Urgent action needed before the situation worsens.
Why It Matters
Financial distress indicates a serious threat to your financial stability and ability to meet obligations like mortgage payments, loans, and bills. Understanding this concept helps you recognize warning signs early and take corrective action before facing bankruptcy or losing essential assets.
Common Misconception
Many people believe financial distress only applies to those with very low incomes, but it can affect anyone whose expenses exceed their income regardless of their earnings level. A high earner with excessive debt or spending habits can experience financial distress just as easily as someone with modest income.
In Practice
A household earning $80,000 annually takes on a $400,000 mortgage, $30,000 in car loans, and $15,000 in credit card debt while facing $6,500 monthly obligations but only clearing $4,500 after taxes. Within months they cannot pay all bills, miss loan payments, and face potential home foreclosure, representing financial distress.
Etymology
From Latin 'distringere' meaning to pull apart.
Common Misspellings
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See Also
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