Debt Affects More Than Your Budget
The obvious consequence to being in debt is having less money. Each month, you have to budget for the minimum credit card payments on every credit card you own (and if you can, you’re probably paying more than that monthly minimum). But keeping a balance on credit cards punishes more than just your monthly budget. Having too much debt can be dangerous, and keeps people from doing things they want (traveling and shopping) and the things they need (purchasing a new car). Consider the following ways that having excessive debt is negatively impactful.
According to AboutMoney, 30% of one’s credit score is based on their debt amount.
High debt-to-income ratios can lower credit scores (check out exactly how in our last post). With a lower credit score, one is less likely to qualify for low interest rates on loans. If the credit score is too low, sometimes people will be ineligible to apply for desired loans. Usually, a reasonable or low debt-to-income ratio is required to apply for automobile, mortgage, and personal loans. Debt can actually keep someone from owning a home, or car.
To qualify for low financing, banks often require a low debt-to-equity ratio. Additionally, financial services usually have a minimum credit score requirement. With a high debt-to-income ratio, one is potentially disqualified for loan consolidation, loan refinancing, and other financing options. SmallBusiness gives the example that if one’s debt-to-equity ratio is 2, and the bank’s cutoff is 1.5, the bank would most likely deny the loan.
People with huge amounts of debt typically feel like they cannot spend money on anything additional — like travel. Not all debt is from reckless behavior. A lot of people go into debt for reasons like education loans, disability, and illness. In an “Ask Stacy” article by MoneyTalksNews, Stacy Johnson explained she felt like she was drowning from debt, and that even gas, groceries, and utility bills just added to the financial burden. Even the necessities measured up to more money than Stacy and her husband brought in. She is not the only person experiencing this. People throughout the world feel weighed down and trapped by debt.
Having excessive debt and not being able to make payments can potentially lead to bankruptcy. To a less drastic degree, not making payments on time can higher interest rates, and accumulate late fees. It is just a never ending cycle that keeps getting more and more expensive.
Living a life with debt where one feels they can never pay it all off is emotionally straining on the body. Often having a lot of debt can be overwhelming, and cause sleep deprivation, anxiety and depression. Feeling out of control from one’s finances can be scary.
Having excessive debt can take a huge negative toll on lives. If possible, it is best to try and prevent this situation before it starts. Especially since debt perpetuates higher interest rates — making the whole process more expensive than it already is.