Debt can hinder financial confidence when you spend more than you make and borrow using credit. Other financial problems may occur, such as inadequate emergency or retirement savings.
Another problem debt may create is what’s referred to as a debt trap, where an individual borrows money and cannot pay it back, leading to a cycle of more borrowing to pay off old debt and so on. There are numerous ways that debt holds a family back from financial confidence:
Decreases Their Ability To Save
For many, saving requires having money to save after paying monthly living expenses and debt-related expenses. Emergency and retirement savings are two significant things that may be impacted when debt takes over. When the ability to save decreases, assets may face premature liquidation, or other needs may go unmet. Saving is a great way to increase financial confidence.
Missed Investment Opportunities
When debt takes significant cash away that could be invested, families miss out on home ownership, retirement savings strategies, and other investments that accumulate in value over time.
Inability To Obtain Credit Is Terrible For Financial Confidence
Many families purchase larger ticket items such as cars with credit. If a family can’t get a loan due to a high debt-to-income ratio, they may be unable to purchase specific items. Auto insurance, cell phone companies, and other providers rely on credit reporting to approve or deny services. For example, cell phone companies often finance new phones as part of the monthly plan. If a family member needs a new cell phone, they may be unable to finance it.
Higher Interest Rates
Credit card companies can raise your interest rate for late payments, Fed rate increases, revolving balances, and just because they want to. If you have credit card debt and carry a balance month over month, you will pay higher interest rates than your peers without revolving credit. Higher interest rates mean you will pay more over time. Credit card interest rates will zap your financial confidence.
Health Issues
People with outstanding debt may face mental health issues due to stress, depression, and anxiety. These come with living paycheck to paycheck, significantly if a financial crisis impacts them. Physical health may be affected if one can’t sleep at night, are tired and unable to perform their work or fatigued and have a job that requires physical labor. Debt may lead to health issues and the additional cost that often comes with it.
Gain Financial Confidence And Don’t Ignore Debt
Debt can occur for numerous reasons, some of which are beyond our control. But ignoring debt and continuing to accumulate more debt can hinder the financial confidence of an entire family. You must seek help if you have more debt than you can handle. Your financial professional can help or seek help from a reputable non-profit organization specializing in debt reduction, management, and counseling.
SWG 3011414-0723a The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information, and programs made available through this website.
Expedition Insurance Services was founded in May of 2021 by Jeff Baker and Ryan McCready. With over 30 years of combined insurance and financial knowledge they have created an insurance agency unlike others. EIS is committed to offering the highest level of expertise and integrity, in a client first model. Our goal is simple; educate the client so they can make the most informed decision for themselves and their family. Contact us today to begin your journey.
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