Problems With Long-Term Debt

Long-term debt is debt or other financial obligations that last for at least one year, according to the Business Dictionary website. These debts typically charge interest, so you end up paying more than the initial loan or debt amount. In some cases, the interest payments end up being more than the initial debt amount. Long-term debt examples include credit card debt, medical bills, mortgages, car loans, student loans and financed purchases. Long-term debt can lead to a number of different financial problems.

Credit Score

One major problem of long term debt is the effect it has on your credit score. One item to look at is your debt-to-credit ratio, which compares your total debt to the available credit. For example, if you owe $3,000 on a credit card with a $4,000 limit, your debt to credit ratio is 75 percent, because you have used 75 percent of the available credit on that card. You should try to keep your debt to credit ratio under 50 percent, according to the Debt Steps website. A high debt-to-credit ratio decreases your credit score, which in turn causes a number of problems. People with low credit scores are less likely to get approved for a mortgage or auto loan. Low credit scores can also hurt your ability to rent a house or even get a job.

Investments

Long-term debt can also limit your ability to invest and save money. If all of your extra money is going toward paying off your debt, then you have nothing left to save or invest, which can hurt your financial future. According to the Charles Schwab website, someone in her 30s should save and invest between 15 and 25 percent of her income for retirement, while someone in their early 40s should save or invest 25 to 35 percent. If you cannot afford to do this, you might have to work well into your 70s, and you might spend your retirement years living much more frugally than you had hoped.

Health Issues

Long-term debt can even cause health issues. According to MSN, the stress from long-term debt can lead to ulcers, headaches, anxiety, depression, heart attacks and muscle tension. In fact, people with long-term debt are twice as likely to have a heart attack than those with no debt, MSN reports. The stress of owing thousands or more takes its toll on your mental and physical health over time, and might lead to medical issues.

Other Problems

Long-term debt can cause a number of other problems, too. For example, you might be embarrassed publicly if your credit card is declined or if you receive a phone call from a collector in front of friends or colleagues. Debt also can lead to a loss of freedom where you cannot go out to dinner or on vacation with friends because you cannot afford it because of debt. Debt can also reduce your self confidence, and cause a strain on your romantic relationship.