Tuesday, December 2, 2008

Consequences of Borrowing Too Much Money

Consequences of Borrowing Too Much Money

From a $100 gas card bill to a six-figure mortgage, nearly every American lives with some level of debt. However, if you allow your debt to get out of hand, it can lower your quality of life and ruin your long-term financial health. Heavy debt can bust your family budget, slash your credit score, deplete your savings and ultimately lead to bankruptcy.

Low Credit Score

    According to the Credit Repair website, approximately 30 percent of your credit score is based on the amount of credit card debt you've incurred. A high level of debt compared to your available credit can affect your credit rating. Debt in the range of 70 percent of available credit can start to raise red flags to lenders. Your credit score can affect what type of mortgage rate you're offered, what credit cards you can get, and even what jobs you can land.

Stressed Budget

    High amounts of debt can stress your monthly family budget. Some debt, such as a home mortgage or a car loan is okay to carry, but credit card debt can add up in a hurry. Just paying the minimum balance on high amounts of revolving debt can burden your monthly budget. Adding debt repayment to monthly necessities can cause a downward spiral in which you're charging to buy basics -- increasing your debt even more.

Weakening Savings

    As shown by the Weakonomics website, Americans' spending rates spiked in the mid-2000s, dropping savings rates to lows that previous generations couldn't imagine. Spending rather than saving can have a negative consequence on your long-term financial health. The more debt you accrue, the less money you'll be able to save, and the less you'll have on hand for true emergencies. You'll be forced to put them on a card, again, increasing your debt load. As a consequence of poor financial habits, Americans facing retirement worry about outliving their earnings -- an issue previous generations never had to face.

Bankruptcy

    According to U.S. federal bankruptcy court statistics, 1.5 million Americans filed for bankruptcy in 2010. Bankruptcy, in many cases, is the final consequence of having too much debt, whether it's a mortgage that you can't afford, or too many credit cards. While bankruptcy is a last-resort measure for many people, it might be the only solution, if you have debt that you can't hope to ever repay.

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