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The Negative Effects of Debt

The Negative Effects of Debt

Most of us know what it feels like to be behind on paying bills and concerned about having enough money in our accounts to cover them all. We may also know people who managed to become “debt free” and wonder how they did it. It sounds fantastic but is it realistic?

Before we look at how to achieve “debt free” status, let’s look at how debt impacts our lives. We’ll start with an example of John, who has a lot of debt. He has maxed out his credit cards, has household bills due and isn’t getting paid for another week. He lives paycheck to paycheck, and thinks he can balance the bills and still afford a few groceries – even if he has to live like a college student on Ramen noodles for a few days. One day, John gets up to a very cold house. His furnace has gone out and he has to call for repair. John has no emergency fund, has maxed out his credit cards and now can’t pay his household bills or buy groceries. What does he do? The natural response would be to open another credit card account. At this point, John is stressed out. Feelings of hopelessness, depression and fear have set in. How can he keep himself out of trouble like this in the future? John needs to find ways to start putting money aside each month no matter the amount. Having that emergency fund that is never touched for regular bills can take away some of the stress when the unexpected happens.

Being in debt can affect your goals. When you are living paycheck to paycheck, that trip you wanted to take to visit friends or the house you want to buy are just too far out of reach. It’s time to analyze your spending. Are you stopping for a specialty coffee every day on your way to work? Are you grabbing a sandwich each day from the local sub shop? Are you and friends socializing at a local restaurant on a regular basis? If you really look at where you are spending money every day, there is a high likelihood that there is $5-$10 every day that you could save and those dollars add up. Are you paying high interest on your credit cards? Look for a low interest credit card and consolidate all of that debt to that card. This could add up to thousands of dollars every year. Be sure to cut up your other credit cards. You don’t want to end up in that same situation. Keep your eye on the prize and that long-term goal can be yours.

Being in debt can negatively affect your credit score. It is a vicious cycle. High debt can drive a low credit score. A low credit score impacts your ability to get a low rate on loans. Paying higher interest on loans impacts your available cash flow. Having bad credit can also affect your ability to get a job or your ability to rent an apartment or home. It’s common for people to think it’s ok to let a few payments slide when they are in debt. The impact to paying late leads to more challenges and more debt.

Being in debt can also affect your personal relationships. It can cause marital problems, arguments with children and lost friendships. When a person feels deprived, he or she may look for someone to blame. If your family is in debt, remember you are all in it together and working together to find solutions to cutting non-essential spending and pay down debt is important. You can even make a game out of it and find a way to reward each other when cost cutting ideas are put into place.


According to the American Psychological Association, excess debt can affect your health. You may gain weight from being depressed and feeling out of control. You might ignore health issues due to a concern about finances. Remember that putting off a doctor visit or skipping preventative health care can cause an even larger financial burden down the road.

How do you get out of this continuous debt building cycle? The most important thing is a complete and honest look at every penny you spend. If you put money into a vending machine to buy a soft drink, you need to track it. If you buy a couple of birthday cards and a gift, you need to track it. Once you have a complete look at the non-essential items you can start thinking about where you can make cuts. Instead of buying from a vending machine, consider buying in bulk and take one to work with you. Instead of buying a birthday card, look at free e-cards available online. While these all seem like small differences, they add up. If you identified $30 a week you could “stop spending,” that adds up to over $1,500 a year.

With every purchase you are considering, ask yourself is this is a true need or simply a want. A want you can put off for another day. Do you really need a new car this year or can you spend just a little bit of money on maintenance and make it last until you have it paid off? Do you really need to upgrade your cell phone just because you are eligible or can you forgo being the first on the block to have the newest version?

Look for ways to consolidate debt from high interest credit cards and loans into a single card or loan that has a significantly reduced interest rate. The savings alone from that excess interest can add up quickly. For example, the difference between a 23.38% APR (an average from some of America’s largest retailers on and a card with 10.24% APR with a $2,000 balance can save you $260 a year.

Cutting back on special package deals can also help reduce your spend. Bundled deals sound great – and sometimes they are – but often they include things you don’t really need. Look at your typical cell phone usage to determine how much data you “really” need. Review your cable bill – are there ways to eliminate unnecessary services (like premium channels)? Cutting back here may save you even more dollars.

The next time you get a pay increase, have that money deposited directly into a separate savings account. If you have been living on a certain salary for a year, you can likely do it another year. If you get a tax refund in the spring, immediately put that money to use by building an emergency fund and paying down debt. It’s easy to see that as “free money” to use for buying new clothes you want or taking a trip you have been dreaming of. But keep those dreams in check until you have a manageable plan for getting out of debt.