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Consequences Of Debt

By: Eric Jilson Debt has both a human side and a financial side.
It is easy to work out the financial aspect and it is incredibly large.
Statistics from the Federal Reserve reveal that there was a staggering $972.5 billion in revolving charges as of the end of 2007. People are literally being smothered by the level of debt.
It is estimated that the average American household has a credit card debt in the vicinity of $12,000. The actual debt figures are skewed because of the numbers of people who are not carrying debt - the actual debt levels are much higher than they appear. Overall debt is around $17,000.
Approximately 20% of households are behind on their payments or over the limit on one or more of their accounts.
To give you a clearer picture, for $17,000 debt, the interest and penalties add up to $400 a month. This $400 is not making any impact on the debt.
Beyond the numbers
It is impossible to isolate the human consequences of debt. it is simply not possible to put the effects into categories as they often impact on each other, blurring the dividing line.
Consider the human effects in this extreme example. A school bus driver had been increasing her debt burden and was concealing it from her partner. When this deception was no longer possible, she arranged a meeting with a credit counselor and the partner was also invited. He, the partner, was a physically imposing man and was becoming increasingly agitated, making for a very uncomfortable meeting. A few months later, whilst watching a news story on TV, the counselor realizes that the bus driver who has been arrested for robbing a bank was his client. She had driven right up to the door of the bank in the bus and away again after the robbery. Such was the pressure to meet the debt in that family.
Debt can cause many problems in our daily lives.
Opportunity cost
Freshman year at college is all about getting out and enjoying all the new things around us. Some of these may be credit cards. Lenders give out free T-shirts and water bottles in return for our "loyalty". "Easy" credit is available and before they know it, many students have scored poor results for their credit rating - and they have yet to leave university. They may even have to leave before they complete their degree because of their debt burden.
This impacts just as much on the students whose parents have paid their way to college, unless they have learnt how to manage credit. Debt experts see many students who have found themselves in the situation where they have had to drop out. Many of these students never manage to return to their studies, which in turn has the potential to negatively impact on their future lifestyle.
People in the financial world refer to this sort of debt as "opportunity cost", because they have lost the opportunity to gain an education that will help to get them a better job as a result of being tempted by the easy money.
Job prospects Your credit score can either make or break your future. It is like a branding mark; one that can prevent you from acheiving your goals. The longer a bad credit rating stays with you, the harder it is to get out of the cycle.
A student that drops out to find a job to pay off the debt may find to their shame that they cannot get a job because of that very debt. Even for those students who manage to obtain their degree, it is sometimes not enough to counteract the negativity. So, it is clear then that if you rack up a large debt on college it may cost you a good job.
This situation is not restricted to students - anyone with a bad credit rating who finds themselves in a position where they have to look for another job will be affected, as employers check out credit ratings, not just work history and personal references.
Even if you have a good job, a bad credit rating will cost you in other ways, for example higher insurance premiums and inflated interest rates on car loans and mortgages.
Worker productivity If you are constantly worried about your debt it is going to affect your performance at work and hinder your chances at promotion, further affecting your concerns about debt and the cycle continues.
The biggest stressor in America today is the concern that people have about paying off their debts. Many people are living from paycheck to paycheck, not managing to save at all and worrying about ever getting out of the mess.
This is a concern for people on a personal level, but it also has ramifications for the national economy because it impacts upon the ability of a business to make a profit.
The biggest loss of income in corporate America is a result of lack of production, caused by employee stress.
Peace of mind People who contact credit counselors are embarrassed and ashamed about their situation. They are struggling to understand how they ever got into so much debt. They do not deliberately place themselves in this situation.
These people are not abusive or aggressive - they are confused and very worried about the effects both now and in the future and they need answers and reassurance.
Collection agencies and their actions often add to this desperation. Collection agents who lie to people and claim that the police will be called and they will be sued only make things worse.
Partner relationships Debt can most definitely result in relationship problems. Couples blame each other for the problem and this is compounded if they view debt differently. Marriages end as a result and families are torn apart.
Future generations Children also suffer from their family's burden of debt in many ways. Their parents' depression and anxiety has the power to affect the children in turn.
Sometimes debt is so severe that families have to move, so children have to make new friends and get used to a new school. Sometimes if parents move their families in with the grandparents, there is the stress of finding space and peace, even if it means that they can save money.
Parents often pass on the problem to their children, not necessarily deliberately, because they cannot save for their children's college education. This can mean that they either don't receive this education or they in turn have to go into debt to achieve it.
The challenges of facing parenthood with an existing debt are immense. With children comes further expense and less of a chance to get out of debt. With this is the added concern that, with people choosing to have their children later in life, there is less of a window of opportunity to clear the debt before retirement.
Achieving goals The attitude of many people tp have everything now on easy credit will in reality prevent them from having the nicer things in life in the future. People used to save to buy things, but now we don't save at all.
The task of dragging yourself out of debt can result in the loss of your home, even if it isn't from bankruptcy or foreclosure. You may have to consider downsizing your home to manage your debt.
Spending power When you have to pay off a debt it restricts your ability to spend, so before you decide to use the plastic to make a purchase, check your previous bills and you might be surprise to see that it actually ended up to you paying close to twice the original price. In this case, why not use a charge card and try transferring credit card balances to your charge cards and use the latter during shopping.
For example, if you make $1,000 purchase with a credit card that has an average interest rate of 16 percent, and then make only minimum payments, then it is not a good deal.
In fact, if it were a $1000 TV, it is really costing you $1600!
The only reason why we are offered "teaser" rates around 1.9% is because the lenders are sure that we will not be able to pay it off before the offer expires. When we fail to pay off the card, we then have the attitude that we may as well spend more. This gets us further into debt.
Even special lower interest rate cards may not be forever, because if you miss a payment you are back to the higher rate.