Question: What Are The Consequences Of Having Debt?

"Other than having less money left over in my pocket, what are the consequences of having a lot of debt?"

Having some debt can be healthy - from mortgages to car loans to the occasional charge on the credit card; provided the debt is manageable and the interest rates are fair. In fact, those who have never been in any debt haven't had the opportunity to build their credit score, which can make acquiring significant credit more difficult down the road.

If you're keeping up with your monthly payments, there's really only two 'consequences' of having debt:

  • Money spent on interest charges.
    When you borrow money and carry a balance, you pay interest charges that could be better spent elsewhere.
  • Potential difficultly in acquiring more credit.
    It's generally not an issue, but if you're in need of a home or auto loan, having enough other debt may prohibit you from getting new credit. Creditors will look at your debt to income ratio as a large factor in your credit-worthiness, independently of your payment history.

If you're not keeping up with your monthly payments it's a different story entirely, there can be significant consequences to your credit report, finances, and even your health believe it or not.

  • Your credit report.
    The purpose of a credit report is to make notes on how well people deal with credit that's extended to them. Regardless of your income, if your reports show you have a problem paying on loans, your credit score will deteriorate, as will your ability to get new credit.
  • Your finances.
    One of the worst things about getting behind on your debt, is that it makes the debt get even worse. Penalty charges and accrued interest just means you owe more the more you get behind, creating a perpetual cycle of getting deeper in debt.
  • Creditor harassment.
    Nobody likes to be bothered by creditors, and studies have shown the stress associated with dealing with financial arrears and collection agencies can actually be bad for your health!

To sum it up, the consequences of carrying debt vary largely depending on the amount owed, whether it's manageable or not, and other individual circumstances.