Being in debt is common in America. With the majority of people in this country owing money to some form of debt, from everything to home mortgages to credit cards. Most people find a balance with their debts, and are able to manage it carefully so that it is not a problem. However, having too much debt can lead to many problems, some of which are long reaching and significant.
Less Money to Save for Retirement
Debt principal and interest payments can have a serious impact on a family budget. Most families have a limited amount of income, and that income must be appropriately split up amongst different spending categories, including debt repayment. As debt payments increase, there is less available for retirement savings. Many Americans do not save enough for their retirement, and the stresses of debt repayment hampers their ability to increase their savings rate.
Less Discretionary Income
Families use their discretionary income to purchase consumer goods and other indulgences. Consumer spending drives the national economy, and debt in a healthy ratio helps fuel that spending. Many consumers spend money on vacations and cars by using debt. There comes a point, however, when the increased amount of debt requires higher payments, reducing the amount of discretionary income available to spend, and a downward spiral ensues with this continued pattern.
Increased Stress and Health Effects
Too much debt and too much money being devoted to payments can cause stress on a person's physical and mental health. Not only could you suffer the direct results of the stress, but people heavily in credit card debt are more likely to smoke and overeat, increasing these health concerns. A study published in the February 2000 issue of "Social Science and Medicine" cites heart attacks as the number one health problems of people facing financial stress, with problems sleeping the next most common problem.
Increased Risk of Bankruptcy
Too much debt leads to an increase in the risk that you will file for bankruptcy. Even if you are able to pay your bills comfortably, or with a bit of effort, if you suffer a major financial setback, you may be pushed over the edge, and have no other choice than to file for bankruptcy. This is the reason that over-utilization of credit cards and having balances that are too close to the limit reduces your credit score: It increases the risk that you will default, and possibly be forced to file for bankruptcy.
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