Rachel Cruze: Don’t Ignore These 3 Hidden Costs of Debt
Written by
Ashley Donohoe
Edited by
Zuri Anderson
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Experian data showed that the average consumer debt balance in 2024 was $105,056, slightly up 0.8% from $104,215 in 2023. Having this kind of debt comes with some obvious costs, including possible fees, interest and missed opportunities to earn a return on that money.
But according to a video from financial expert and author Rachel Cruze, debt also impacts the lives of borrowers in three sneaky ways. Here are the hidden costs of debt to recognize and Cruze’s suggestions for getting yourself out of the trap.
It Steals Your Peace
“Debt is a thief because not only will it steal your income from you, but it will also steal your peace of mind,” Cruze said.
Simply owing someone money can impact your mental health and autonomy. If you’re struggling with monthly payments, you might have trouble sleeping or feel irritable often.
Even in a better financial situation, demotivation may set in when you realize the money you’re working hard for must go toward debt payments and not toward a life you enjoy.
Cruze discussed deciding to put your peace of mind above owning a lot of things. While this will likely come with a less fancy lifestyle, the freedom and reduced stress may be worth it.
It Creates a Cycle
According to Cruze, many borrowers get so used to having debt payments that they keep taking on new debt. She gave the common example of paying off a car just to buy another one with a new loan and potentially ending up eventually owing more than your car’s value.
Escaping this debt cycle is hard since it can take a long time to pay off the loan and save enough to buy future cars with cash. Cruze also mentioned that escaping underwater loans can require selling the car and eventually buying a cheap replacement that doesn’t require a big loan.
“In order to break the cycle, there has to be something that just shoots you out of it so that you’re not continually in it, running and running and running and getting nowhere,” Cruze explained.
Making a sacrifice, such as committing to continue driving your paid-off car, can help you avoid the costs of the debt cycle. Similarly, if you’re someone who maxes out credit cards repeatedly, controlling your spending and seeking other income sources can be a way out for good.
It Takes Advantage of Your Vulnerability
“So, when you are in a really tough spot, that’s where we find that a lot of people go into debt,” said Cruze.
While some people rack up debt because of poor spending habits, others use payday loans or credit cards since their regular incomes make it hard to cover essentials like housing, food and medical bills. An October 2024 Bank of America report noted that nearly 50% of households somewhat or strongly agreed that they were living from paycheck to paycheck.
According to Cruze, debt takes advantage of desperate people who feel they’ve run out of options and view debt as a lifeline. Such vulnerability could leave you borrowing money repeatedly and struggling to stop the habit.
Cruze suggested preparing with a $1,000 emergency fund that gives you a debt-free lifeline in a difficult situation. She also discussed other options for financial stability, including living on a budget, relocating to a more affordable area and finding a new job
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