You might think that being in a little debt won’t hurt you, but that’s the kind of attitude that might well set the ball rolling on a big debt problem. We all, in this society, need to take debt a lot more seriously than we currently do if we want to ditch the debt for good and become financially healthy. We need to realise that there are so many ways that debt can be bad for us and we need to consider those ways before we sign on the dotted line or swipe or enter your passwords. Of course, debt isn’t always bad necessarily, but most of us don’t just use debt when it makes sense to do so, and that is our ultimate problem!
To help you to think about debt in a more healthy way, and to ensure you don’t get into financial trouble in the future, here are some of the biggest reasons why debt is bad for you, along with a few examples of good debt to balance the argument out:
Debt is a Financial Drain
It should be blatantly obvious, but many people, when they’re putting their bar tab on their credit card or buying a brand new designer handbag, don’t register the fact that doing so will cost them money. Sure, they know they’ll have to pay for the bar tab/bag eventually, but they rarely consider the interest!
Almost everything you buy using credit (barring special 0 percent deals) will come with an additional price tag in the form of interest and, depending on what form of credit you can use, in extreme cases, this could end up costing more than the item you buy! So, before you put something on credit, sit down and work out how much interest you’ll have to pay back. This could be enough to make you think twice and help you make a better decision.
Debt is Like Docking Your Pay in the Future
When you take out a bank loan or buy something on one of your many credit cards, it might leave you with more money in your pocket (or the bank) right now, but eventually you’re going to have to start paying that money back and that means that you’re borrowing from yourself tomorrow to meet your desires today.
Debt Kills Your Dreams
You might think I’m being a tad dramatic with this particular addition, but think about it; when you have lots of debts, you can’t save money or spend on the things that could help you to have a better future, like putting down a deposit on a house, starting a business or travelling the world before you settle down and start a family, in fact, even starting a family might be difficult when you’re drowning in debt- every spare penny you have will go on paying off what you’ve borrowed plus interest, and that’s just sad.
You Might Be Declined for Good Debts
I’m going to mention a few ‘good’ debts later on, so I won’t go into detail here, but safe to say, if you have a lot of credit card debts, payday loans and frivolous bank loans outstanding and racking up the interest each month, it’s going to be a lot harder to take out a loan for something you really do need, which represents a good choice.
Debt is Stressful
When you’re in debt, you start to spend more and more time worrying about how you’re going to pay it what will happen if you can’t. How will you pay the bills? Will you have debt collectors banging on your doors every day? Will it put you and your partner’s relationship under strain? All of these things can have a very negative effect on our mental health, causing you to experience high levels of stress and sometimes even depression. Is it really worth it? Probably not.
Your Credit Score Could Plummet
If you have poor credit score, not only could it prevent you from getting access to ‘good’ debt, but it could also prevent you from getting the best deals on your utility bills or even renting a home should you need to do so. This is serious stuff and stuff that you need to bear in mind before racking up more and more debt that you know you’re likely to struggle paying back. The last thing you want is to be homeless due to poor spending decisions you made in the past, after all!
Debt Could Do You Out of a Job
There are some jobs, such as those in the financial services, which will require you to have a pretty good credit history and low levels of debt. If you have a history of financial problems, you will not be appointed to a position, and that means you could lose your dream job; a job that would enable you to pay off your debts and live a more financially stable life, simply because you have racked up debts in the first place!
Now for the good…
You have to be careful with this one because it isn’t always the case, but taking out a student loan so that you can improve your education is the good kind of debt, primarily because it will enable you to secure your future and make more money over the years. Student loans also don’t have to be paid back immediately, so you have a bit of breathing space there to help you get by.
What you need to bear in mind is whether the course you’re interested in is actually likely to propel you on to bigger and better things or not because if it isn’t, your student loan might become one of those pesky bad debts all over again and you might spend most of your life paying the damned thing back!
If you have a great idea for a new business, but you don’t have the capital to launch it off your own back, then taking out a business loan might be a good idea`. You can learn about loans for entrepreneurs here, but before you apply, you should have at least drawn up a reasonable business plan, and be reasonably confident that your business can do well. If you don’t do this, again your ‘good’ loan could become a bad move in the blink of an eye.\
Renting a home is necessary for many of us, but it is hardly ideal because any money you spend on rent is lost forever. It’s much more financially savvy, if you can, to buy your own home because the money you invest in your home is highly likely to work for you, making you a tidy profit in the future. So, although a mortgage is a form of debt, it is one of the best kinds of debts there is, providing you choose wisely and you can actually afford it, and one you should not avoid out of fear of getting into debt in most situations.
Buying a Car (Maybe)
Cars are expensive things, but the fact is many of us need them to get to work, or even carry out our work and to be able to get around. If you really need a car and you don’t have the ready cash to pay for one, buying one using a finance deal MIGHT be a good idea, providing the interest isn’t too high and it will improve your ability to earn money and live a better quality of life. You should still be careful of doing so though, IMO.
If you know what you are doing, because interest rates are so low right now, it can be a good idea to borrow money to reinvest and therefore make a profit on. I must stress that this is only something you should do if you have a sound financial education and experience of making investments, otherwise, this is a really bad idea, and you should steer clear, but it is an option worth mentioning.
The bottom line: As you can see, there are many more pitfalls to getting into debt than there are good reasons to do so, bearing in mind that two of the ‘good’ reasons for debts are big maybes. This should be enough to make you think twice about racking up debts left, right and centre. It’s much more sensible to avoid credit where you can and use the money you would spend on repayments to build up your own emergency fund, which can be accessed whenever you have a real need.
Using the cash you save by ditching debt for everything but the essentials, to build up a savings account and pension pot for the future is also an excellent idea, which although it might not seem like a lot of fun now, will ensure that you can fulfill your dreams and live a more comfortable life than many of your peers just a few years down the line.