A certain amount of debt in life is somewhat inevitable, whether it’s student loans, buying a car, obtaining a mortgage or putting an unexpected purchase on a credit card. In fact, having some debt is necessary to build a good credit score.
However, debt can also be an insidious black hole that all too easily builds up through interest, and can wreak havoc on more than just your finances — including your mental and physical health. To drive home the seriousness of what unchecked debt can do in your life, here are 12 expert-driven ugly truths about living with debt.
Paying the Minimum on Your Credit Card Isn’t Enough
When that credit card bill comes, it’s easy to just make the minimum payment, thinking that someday in the future you’ll get around to paying it off. Unfortunately by doing that — if you have the median amount of credit card debt for the average American, around $2,700 — you will spend almost 11 years paying off that debt, according to Dave Bochichio, Certified Educator in Personal Finance at Clean Cut Finance.
Plus, you’ll pay an additional $1,646.35 in interest.
“That’s a lot of money that could have gone towards savings or other financial goals,” he said. Paying just $50 per month will bring that down to just three years and only $596.38 in interest, he said.
It Can Prevent You From Owning a Home
One repercussion of debt you may not have considered is that it can eliminate the prospect of purchasing a house, said Adam Garcia, a career coach, financial consultant and CEO of The Stock Dork.
“When applying for a home mortgage, lenders consider all your student, credit card or car loans to approve for a mortgage plan,” Garcia said.
John Li, co-founder and CTO of the lending company Fig Loans and a long-time financial management expert added, “Mortgage lenders don’t look kindly on applicants with high debt payments. The more of your available credit you use, the higher your credit utilization ratio climbs, which can negatively affect your credit score. Generally, your monthly debt payments must be under 35% of your income to secure a mortgage.”
He concluded, “Pay down your debt ASAP if you have big homeownership dreams.”
You’re Borrowing From Your Own Future
The money you use to pay off your debt not only costs you more than your initial payment due to interest, but, according to Marigny deMauriac, a certified financial planner with AWM Insurance, “You’re also not able to invest with the dollars that need to go towards paying down debt. As a result, you miss out on opportunities to invest wisely in other areas and you miss out on long-term, compound interest that benefits you.”
This can include investing in your own retirement or saving for an emergency. Because of the interest your debt earns, it can also easily snowball out of control. “In other words, you’re borrowing more and more money from your future to pay for yesterday’s expenses, when you have no idea what the future will hold,” deMauriac said.
It Encourages You To Spend Beyond Your Budget
Though plenty of people are responsible with debt, the idea of paying “later” makes it all too easy to get into a mindset that you can afford things beyond your budget, said Scott Spivack, marketing director at United Medical Credit.
“People with debt have this innate habit of spending even though they can’t afford the payments. Part of this allure comes from the fact that you get the pleasure of getting new things without dealing with the immediate pain of parting ways with money…but in the future, they all catch up with you and that’s when the real problem arises.”
It Can Lower Your Credit Score
A low credit score may not affect your everyday life, but it does hinder your ability to be able to take out a loan later in life for big milestones like a mortgage, according to Donny Gamble, a personal finance expert and the founder of Retirement Investments.
“This can make you feel helpless and not as successful as your peers. Although this is not always important, it is tougher to get ahead when you have extreme debt and will prevent you from being able to do certain things,” Gamble said.
It Can Deplete or Negate Your Savings
A lot of debt typically translates to little to no savings, Gamble said, because you’re either spending all your extra income paying it off, or you aren’t prioritizing savings to begin with.
“Even if you have debt, you should always put some money into your savings first, or you risk never having any money for future or unexpected expenses that could make your debt even worse.”
It Impairs Your Ability To Achieve Goals
Budgeting is the first step to achieving your goals, said debt expert Sean Fox, president of Freedom Debt Relief and chief revenue officer of its parent company, Freedom Financial Network. By budgeting you make it possible to see what income and expenses you have and to save for goals such as a vacation, a child’s education or retirement.
Debt gets in the way of all that, Fox said. “When it comes to filling in the line items for expenses, if debt payments are a significant portion, you simply have less available to save and achieve more of your goals.”
It Can Cost You a Job or Promotion
Though your debt may not seem to be anyone’s business but your own, 39 states and the District of Columbia are legally allowed to run a credit check on a prospective employee. A low credit score (which can result from high debt) can cost you a job, according to WalletHub.
Debt can also cost you a job promotion, according to Luke McCann, owner at CollectionAgencyMatch.com. “In the debt collection industry, I have witnessed many great employees being passed over due to them receiving collection calls at work or worse, having automobiles repossessed.”
It Affects Your Mental Health
Unfortunately, having too much debt can also have some very negative effects on your mental health, according to certified financial planner Ashley Folkes of Bridgeworth Wealth Management.
“I have been a financial planner for over two decades now, and here are some things that I have seen stress cause due to having too much debt. Debt can cause a relentless fear of never being able to get caught up or ahead. It causes anxiety, depression, relationship problems, emotional insecurities, loss of productivity in the workplace, increased use of alcohol and drugs, and data showing it increases the risk of suicide. There is even a term used called debt stress syndrome. It touches every fabric of our being if not managed correctly.”
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It Makes You Feel Like You’re Falling Behind
Debt isn’t just something that happens to your bank account. According to Margaret J. King, Ph.D, who studies the human side of finance known as neuroeconomics as a cultural analyst and director at The Center for Cultural Studies & Analysis, “The negative effects of debt include always feeling behind where you could be, having to work around the elephant on the balance sheet, and never being able to enjoy any windfall because debt always absorbs any extra affluence.”
It Impacts Physical Health, Too
A new study from the Financial Health Network found that 63% of employees are carrying credit card, medical and/or personal loan (unsecured) debt, which two-thirds of them reported led to stress that impacted their physical health.
It Can Interfere With Medical Care
An area of debt not commonly discussed is medical debt, which people can rack up as a result of significant illness or a medical emergency. Such debt can lead to problems seeking future medical care.
Maria Porto, assistant vice president of partner relations for Hanscom Federal Credit Union, explained, “Medical debt can prevent patients from seeking additional medical help when they need it because they feel embarrassed or ashamed about already being in debt. This can lead to medical complications and even more debt, which can easily and quickly spiral out of control, especially when healthcare for an existing condition is avoided.”
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