Reasons Why High Debt Could Be a Problem

Accumulating large amounts of debt can be relatively easy, especially if you have access to credit cards with high spending limits. While going into debt can offer immediate rewards and gratification, the long-term effects may not be so enjoyable, Heavy debt can have a severe impact on your personal and financial health and even the state of the economy.

Reduced Credit Score

Even if you make timely payments toward your debt, heavy debt can have a negative impact on your credit score. An important factor used to determine your three-digit FICO score is your credit utilization ratio, which measures your amount of used credit in relation to your total available credit. A credit utilization rate of 30 percent or less is generally considered to be favorable while a rate of 60 percent or higher could result in a drop in your score.

Increased Stress

Carrying a high amount of debt can be stressful, especially if you have difficulty making the minimum payments each month. Lingering stress can affect your mood, your ability to sleep and your relationships with family members and coworkers. If your debt situation does not improve and the stress continues for months or even years, you could suffer health consequences such as ulcers, high blood pressure, depression and heart disease.

Impact on Business

If you decide to deal with your debt by reducing your spending, doing so can have an adverse effect on business. Cutting back on spending reduces the amount of money that flows into the coffers of locally owned businesses such as dry cleaners, restaurants and small specialty retail shops. If debt reduction occurs on a wide scale, the loss of revenue can impact the economy in the form of job cuts and possible business closings.

Filing Bankruptcy

If your debt accumulates to the point where you can no longer make the minimum payments toward your obligations and you're being harassed by bill collectors or threatened with lawsuits or wage garnishments, you may have to resort to filing for bankruptcy protection. While bankruptcy may reduce or eliminate debt, allow you to keep important assets like your home and car and protect you against creditor actions, there are long-term implications. A bankruptcy remains on your credit report for up to 10 years, making obtaining credit in the future more difficult.