If you are trying to aim for a successful financial future, you might want to do something about your debts. Unfortunately, debt seems like something that a lot of Americans cannot live without. According to reports, the household debt is now at $13.86 trillion. This is already higher than the debt before the Great Recession happened. With reports of another recession looming on the horizon, it is not possible that a repeat of the financial crisis will happen. If you want to protect your finances, you need to start being proactive about your debts.
While it is not impossible to have a good future even if you have debt, it will make your life a lot harder.
Not only that, you have to realize the injustice of letting your past debt ruin your future. Instead of being able to pay for the things that you want, you are forced to use your money to pay for your debts. These are debts are from purchases that your past self selfishly used. Your poor future self will end up paying for the things that may no longer be of value by then.
But the payments are not the only thing that you need to focus on. There are so many ways that debt can compromise what could have been a successful financial future.
How debts can compromise your successful financial future
Having a successful future does not happen overnight. This is especially true if you want to set yourself up to have a strong financial position. You need to start as soon as possible if you want to have a financially secure future.
To do that, you need to pay off your debts. Otherwise, your debts will keep you from having a successful financial future. Here are the different ways it will do that.
Keeps you from investing in retirement
This is one of the best ways that you can secure your future. When you invest in your retirement, you are increasing the funds that you will live on after you stop working. The more you have, the better it will be for your retirement life – especially since you will need to spend more on health care when you are older. Unfortunately, a survey revealed that 4 out of 10 workers are not confident about their ability to pay for medical expenses when they retire. This is only one of the reasons why you need to save for your retirement and debt can compromise that.
The thing about your retirement fund is that it is better to invest early. Any amount that you will invest will grow significantly because of the compound interest. Even if you can only contribute a small amount, it will grow as long as you invest early. So make sure you pay off your debts as early as possible so you can maximize your retirement contributions.
Lowers your credit score
Having too much debt will also keep you from having a good credit score. A high balance will affect your credit utilization rate. Not only that, but it can also compromise your ability to pay. If you start missing payments, that can affect your payment behavior and pull down your credit score. If you have plans for the future, you need a good credit score to make it easier to achieve them. At least, this is true if you need to borrow money to finance your financial goals. This is how debts can also keep you from a successful financial future.
Restricts your job options
There are two ways that this can happen.
Some employers conduct a credit check before they hire you. If you have a lot of debts, this could affect your credit score negatively. It may be true that there is a law that prohibits employers from discriminating against applicants because of their credit score. However, it will still affect their perception of your abilities. After all, if you cannot fix your finances, how can they trust you with their business?
Another way that your debts can hold you back is by keeping you stuck to your job. Sometimes, you feel the need to shift to another career that offers better working conditions and less stress. However, you also know that shifting to a new job will put you in a weak financial position. If you have debt payments, you cannot afford to risk it. So any plans of changing your job would have to wait until your debts are paid off.
Prevents you from buying a house
If you are thinking about buying your home instead of renting, you should probably get rid of your existing debts first. A house is expensive. There is a high chance that you will borrow a mortgage so you can afford the payments. Because of this, a good credit score is a must. Or at least, it will help you save money through the interest rate. If you have a good score, the lender will not feel the need to give you a high-interest rate.
Not only that, the presence of your current debts will make the lender doubt your ability to pay back the loan. They will consider you a high-risk borrower and that will affect, not just the interest rate, but also the amount that you will be approved to borrow.
Finally, your current debts will also keep you from saving enough money for your deposit. The less you pay towards the deposit, the higher the cost of buying a home. You need to borrow more and that will lead to a higher interest payment. Not only that, you have to pay the insurance for not meeting the minimum deposit requirement. All of these issues are caused by the debts in your life that have gone out of control.
Hinders you from starting a business
Some businesses do not require a huge capital – but usually, these are slow to take off. If you want a thriving business, you need to be prepared to spend more for it. After all, it is not just the starting capital that you need to prepare for. You should also have at least 6-months worth of operational expenses to cover.
All of these will be harder to meet if you have a lot of debts. Even if your business idea will solidify your dreams of having a successful financial future, it will be hard to achieve unless you do something about your debts.
Stops you from going back to school
Going back to school would mean improving your knowledge and skills so you can demand higher pay. This is an effective way to start building a successful financial future. With higher income, you can increase your personal net worth. Unfortunately, higher education is not free. You need to pay for it and that may be hard to do if you have a lot of debts to pay off. You might have to postpone your dreams of going back to school to improve yourself.
Other ways debt can affect your life
While the effects of debt are mostly towards compromising a successful financial future, that does not mean it will not do anything to your present life. To be specific, here are the different ways that debt can affect your life negatively.
According to reports, happiness is connected to wealth. The more you have it, the happier you are. While the study revealed that any amount higher than $75,000 a year will no longer affect your happiness, it still proves that having enough money will make you happy. It will keep you from feeling stressed – especially if you are tired of trying to make ends meet.
When you have debts, you are restricting your finances. Instead of buying things that will make you happy, you have to resort to paying for your debts. That can make you feel robbed for some reason.
Your quality of life
Since your happiness is compromised because of your debts, it will also affect the quality of life that you are living. Among other things, the presence of too much debt in your life will cause you a lot of stress. To be specific, you will be stressing over where you will get the money to pay it off. That can lead to a lot of sleepless nights and anxious thoughts.
Your daily expenses
Finally, debt will restrict your budget and in effect, it will limit your spending capabilities. You will be forced to live on much less – which can be discouraging and frustrating at the same time. If your spending habits caused you to land in so much debt, it is also among the first that will be affected by it. You will not be able to buy what you need and you might even be forced to skip on some necessities. Having your daily expenses restricted this way should convince you that debts are really bad news. It will not just keep you from a successful financial future. It can also affect your current life.