Debt can creep up on you, and with the accessibility of credit cards it can be relatively easy to ignore at first. What started out as spending $10 here and $5 there can quickly pile up into thousands of dollars in unpaid bills that are accumulating more interest than you can pay off each month. This is a scary situation and is, unfortunately, not-so-unfamiliar to many Americans. But is it really that bad? In short, yes. Here’s why:
Out of Control Interest
Purchasing something with your credit card can feel almost free, but you always pay for what you spend. In the case of interest rates, you can end up paying a whole lot more than you spent, long after you have forgotten about your original purchase. In many cases (especially for new card owners) interest rates can be well above 20% per month, which means if you accumulate $1,000 in debt, you will owe an additional $200 for every month it is not paid. In severe cases, card owners will find themselves only being able to pay off the accumulated interest every month, while being unable to chip away at the original balance. Situations like this can quickly spiral out of control, and create a cycle of repayments that could spell catastrophe for your finances.
Prohibiting Life Goals
High monthly debt payments not only limit the amount of money you are able to spend on things you want (vacations, going out to dinner, shopping sprees in Target), but they can also prevent you from buying things you need. For example, when you apply for a home loan, your credit card, student, and auto debt are all taken into consideration. If your debt is found to be too high, you may find that you are unable to get a mortgage. Serious debt and high monthly interest payments can also prevent you from putting money towards savings and retirement, which may not be something young card owners think about now, but is certainly going to come back around later on in life if things are not brought under control.
Impact on Other Expenses
30% of your credit score is based on the amount of debt that you have compared to your credit limits and loan balances. The greater the disparity, the lower your credit score will go. Even if you are not looking for a new card or loan, your credit score will impact other expenses in your life, such as the cost of your auto insurance.
Debt can hurt not only your wallet, but also your relationships and mental health. In fact, studies have shown that high amounts of debt can cause sleeplessness, irritability, difficulty concentrating, loss of appetite, and strain on personal relationships. These symptoms (commonly referred to as “Debt Stress Syndrome”) can all pile on top of one another to create a suffocating environment that it is very difficult to get out of.
What is the Best Way to Combat Debt?
If you are faced with climbing debt, the best way to combat it is to get on top of the situation before it spirals out of control. Develop a budget, repayment strategy, and cut back on unnecessary spending and activities that may increase debt. If the situation is dire, seek out financial and debt consolidation advice from a trusted professional.
The worst thing you can do is hope that debt will go away on its own.
About Eastpoint Recovery Group
Eastpoint Recovery Group is a premier receivables and collections agency based out of Buffalo, New York. They not only help their clients recover outstanding obligations but also work to educate consumers on consolidation and debt-avoidance.