It is very easy to borrow money these days – if you have a credit card, borrowing money is as simple as swiping a card or entering your credit card details online. Your bank will gladly borrow you money or extend an overdraft facility to you if you have a decent credit score. If you want to change your car but you don’t have enough money, financing is available.
In fact, you can get a loan on just about anything from an iPhone X to a holiday in Bali. You’ll find it easy to rationalize that everybody borrows money from time to time, so it’s not a big deal, right? This piece is a jarring reminder providing five reminders on why debt is bad for your finances.
One of the main reasons you need to be cautious around debt is that you’ll get less than the actual face value of your debt. Application fees, origination fees, late payments charges and interest are some of the fees you’ll be required to pay loans. Hence, getting a $10,000 loan doesn’t mean you actually get to spend $10,000. A study conducted by Debt Consolidation suggests reveals that the average American household pays about $1,300 per year in interest. That’s $1,300 that can be applied towards a down payment or used to pay off a small credit card debt.
The key to financial health and prosperity is to ensure that your income is always higher than your expenses. If you keep your income higher than your expenses, you’ll have some money left over that you can save or invest. Debt however tempts you to spend all of your money, so you don’t have anything saved away for emergencies and you won’t be able to unlock multiple streams of income via investments. The worst part is that the loans you take will make your expenses more than your income and you’ll start having financial deficits that could make it hard for you to attain financial freedom.
There’s no denying the fact that you most likely need debt to take up some projects such as paying your way through college or buying a house. However, lenders will look at your credit history, credit score, creditworthiness, and debt to income ratio to determine if they should borrow you money or not. Your debt to income ratio shows compares your monthly payment on debt to your monthly gross income. If you have overstretched your creditworthiness on frivolous stuff, you might find it hard to secure funding for other important things.
Another important reason to avoid debt is that it could take a huge toll on your health. For instance, you can start worrying when you are in debt and it seems that you don’t know how to pay your way through. Some people could also start losing sleep up to the point of insomnia over their inability to repay their debts. Other attendant effects of stressing over debt include migraine, ulcers, and depression. You could then end up taking on more debt to cover the medical costs of treating your medical conditions. The worst part is that you’ll still be required to pay your debt irrespective of the state of your health.
Debt has a way of exerting unhealthy pressure on your relationships – if you are married, a heavy debt burden could pose serious threat to your marriage. Debt will engender tight household finances which in turn creates a sense of financial insecurity for your spouse and your kids. The financial insecurity could in turn lead to arguments over who is responsible for what part of the debt. If the communication lines are strained and there’s no actionable plan to get out of debt, you could end up losing your marriage.Previous: How I Recovered from Google Penalties, Algorithm Updates / Changes & Gained Traffic Back