Debt sucks doesn’t it?
People get into debt for many reasons and not all of them are bad.
Regardless of how you got into debt, I want to ask you one simple question: Are you on track to get out of debt as quickly as possible?
I really encourage you to try to get out of debt as soon as possible. If you aren’t already doing that, I want to spend some time explaining just how costly debt is and then show you how you can get a personalized get-out-of-debt plan that walks you through each step you need to take to get out of debt ASAP.
Here are the top 10 problems created by debt. The first 5 problems are financial problems and the next 5 are non-financial problems.
Problem 1: Interest – Everyone understands the basic concept of interest: the lender will only give the borrower money if the borrower agrees to pay back more than the amount borrowed. But have you ever stopped to calculate exactly how much interest you are paying each year?
A $10,000 loan with a 5% interest rate will cost you $500 every year
A $10,000 loan with a 10% interest rate will cost you $1,000 every year
A $10,000 loan with a 20% interest rate will cost you $2,000 every year.
So if you have $30,000 of credit card debt at a 20% interest rate, you are paying $6,000 every year just for interest!
How much do you pay in interest each year? How about toward your debts in total? Imagine what you could do with that money when your debts are paid off!
Problem 2: Poor credit score – When you carry large balances on your credit cards, make your debt payments late, or just have a lot of debt in general, your credit score is negatively impacted. Having a low credit score affects you in so many ways. For one, your interest rates on any new debt will be higher. You may also be denied loans you really need, like when you want to buy a house or you need a new car. Landlords almost always run credit checks on potential new tenants. It can even limit your future employment options because some employers run credit checks for certain positions.
Problem 3: Debt can quickly grow out of control – Being in debt may create an unhealthy mindset where you say “I’m already in debt so I’ll continue to add some more charges on my credit card. A little more debt isn’t a big deal.” Or you could even be trying to contain your debt problem but somehow it keeps growing anyway. We call this the fire effect – where the debt problem quickly spreads and does a lot of damage. As with any fire, you need to put it out as quickly as possible. The longer you let it grow, the harder your life will be later as you deal with the financial consequences of your debt.
Problem 4: You will be playing catch up with your finances for a long time – There are so many ways you are limited when you have debt. Right now you might just be struggling to pay your bills each month. But if your car breaks down you may not be able to afford to fix it. And whenever you have a large, unexpected expense, where will you get the money to pay for it? You may be forced to go into even more debt which worsens your debt problem. When you want to buy a house or a new car, it will take you much longer to save up the down payment you need. And, until you get out of debt, you won’t be able to save much for retirement. Eventually, because you started saving for retirement later in life, you may find yourself again struggling to make ends meet even in retirement. The point we are trying to make is that the longer you are in debt, the more your finances will suffer. Every new expense will weigh on you. And even after you have finally managed to pay it off, you will find yourself behind on saving for important things like buying a house or retirement.
Problem 5: If you default on your debts, you could lose a lot – You may default on your debt payments if you lose your job or cannot work because you get sick or injured. This will put you in a very dangerous situation which could result in losing your house, losing your car, losing your savings, ruining your credit, filing for bankruptcy, or all of the above. Imagine how difficult it would be to have to push the reset button on your life like that. The longer you remain in debt, the higher chance that something like this may happen.
The first 5 problems were financial problems caused by debt. The next 5 are non-financial problems caused by debt.
Problem 6: Unhealthy emotions – First off, being in debt can create in people an array of negative emotions. They can feel:
Stress and anxiety
Guilt or shame
Anger or resentment
A sense of failure at life
The loss of self-worth
We hope you don’t feel all of these things, but chances are that you’ve felt at least a couple of them before because of your debt. There may also be someone in your family struggling with other feelings that you do not have because of your debt problem.
Problem 7: Your life may feel ruled by money or your debts – You may feel severely constrained by your lack of financial flexibility. You may be missing out on things that are very important to you. Because you have to make your debt payments every month, you could be forced to say no to a family vacation, going out with your friends on the weekend, giving your child the birthday gift he or she wanted, or even something simple like taking your family out for ice cream. Debt can prevent us from living life to the fullest. For some people, the sooner they get out of debt, the sooner they can take back control of not only your finances, but also their very life.
Problem 8: Debt can create conflict in relationships – Agreeing on how to approach paying off your debts and deciding where you need to cut back to make ends meet is one of the most difficult and stressful issues that couples face. Once you are able to eliminate your debt and have some more flexibility in your finances, you will probably face less conflicts in your relationship.
Problem 9: Many unhealthy habits in life can develop from problems in another area of life – We just gave the relationship example of how relational problems can arise from financial problems. But there are so many other areas in life that can be affected as well. Are you gaining weight because you are stress eating? Or do you try to escape from your debt problem by turning to an addiction of some kind? Of course, debt is not necessarily the cause of these other life problems. But chances are that if you feel burdened by your debt, you are using something as an outlet or an escape from these negative feelings.
Problem 10: Your children learn bad habits from your example – As you already know, your children are always learning from you and often imitate your actions. If you cannot say no to something you really want, they will probably never develop the ability to say no to their own wants either. When they become adults, they could find themselves in debt just like you. But here’s the good news. Even if you previously modeled a lifestyle of poor financial decisions, you can always start to teach your children good financial habits by explaining to them how you got into debt and then showing them how you are making those tough decisions to get out of debt.
As you can see, there are many ways that debt can impact your life and we’re sure you can relate to at least a few of the things we mentioned. We hope that we’ve convinced you that it is worth it to pay off your debts as quickly as you can so