Debt is something that is a fact of life in the modern world. Everywhere we turn, we are forced to borrow money in order to get ahead in life. We have to borrow money for our education, our homes, our cars, even our phones and healthcare. In an ever more expensive world, debt is a burden that we must all bear. One thing you should keep in mind though as you take on debt is that there is a side effect and debt should be used sparingly and in ways that will IMPROVE your life.
The Consequences of Debt
Debt has several side effects. The first side effect is that you WILL pay more for an item bought using debt. This is called interest and virtually every lender expects to be paid some amount of interest. The second side effect is that you can face difficulty repaying that debt. When you take out loans, lenders generally look at your income vs liabilities. That’s called debt to income ratio. If you lose your job or face a pay cut, you could find yourself stuck owing more than you can physically pay back. The third side effect of debt is that you can end up being a slave to that debt. You’ll always feel like you have a yoke around your neck constantly pulling against you and keeping you from achieving your financial goals. Finally, the last side effect of debt is the added pressure that debt can put on you and your relationships. Poor financial decisions is one of the leading causes of divorces and breakups. It even causes some people to rethink whether or not they wish to marry to someone.
Some Debts can be Good, but understand reality
Like I said earlier, some debt is necessary and in fact, some debts can even be beneficial. Having a home loan can help you buy a house and build equity. Homes are often times the biggest asset the average american can own. Home ownership is vastly higher in the U.S. than it is in most of the developed world. Student loans, when used responsibly, can help people meet educational goals that improve their lives and help them earn more money. The biggest thing about these debts are that they need to be used sparingly and only taken out in small doses. Just because a lender says they’ll loan you $400,000 on your home doesn’t mean you should do it. Many people who took out student loans took out more than they needed or didn’t look at ways to cut costs like attending in state public schools, utilizing community colleges and technical schools or getting degrees that won’t help them achieve their financial goals. Having $150,000 in student loan debt for a bachelor’s degree from your dream college doesn’t feel so good when the payments come due and you’re only making $20,000 a year working as a barista.
Interest is a real drain on household resources each year as well. A typical family in America pays an average of $10,000 per year in interest and the average person could pay hundreds of thousands of dollars in interest over the course of the life of a loan, especially mortgage loans. Imagine what you could do with that money. Pay cash for you education, save for retirement, go on a vacation, the list goes on and on. The bottom line is, when you take out debt, make sure you always ask yourself if its worth it. Is that $5 latte worth $8 by the time you factor in interest on your credit card? Is that fancy new $50,000 car worth the $70,000 you’ll ultimately pay after you account for interest? Asking yourself these questions while looking at the big picture can help you have a brighter financial future.
Don’t put off seeking professional help
A side effect is an unwanted outcome that often places a significant burden on the person experiencing it. If you’re already experiencing the burden of debt, you should consider contacting us for a free consultation . We meet with clients all the time who don’t want to file bankruptcy because it would hurt their credit. What they don’t realize is that having a credit score of 800 is useless if you are already maxed out on debt. While repaying your debt is an admirable goal, it’s not always possible or even advisable. Starting fresh is exactly what bankruptcy is all about and why we do what we do. Filing bankruptcy is better than spending the remainder of your life in debt, never getting ahead, and never saving for retirement. At the very least, you should speak with a qualified bankruptcy attorney about how they can help you recover your financial well being using the bankruptcy code to your advantage. Consultations with a qualified, award winning attorney, are always free at Harmon and Gorove. We’ll be honest with you about your options and never pressure you to do something that isn’t in your best interest.