While most people don't like the idea of debt, many fail to realize exactly how debt can negatively affect many aspects of their daily lives. Not only can it impact your current finances, but it can also affect your future plans and even your retirement.
Having a large amount of debt can:
Hinder Your Ability to Save
When you have a large amount of debt, you will need to take any additional income you have and try to pay the debt down to avoid paying additional interest. With a large portion of your income going to paying off current debt, you will probably find yourself with less money to save. Not only are you accruing interest on the debt that will have to be paid back, but you are also losing interest that you might have gained on the money if you were able to save or invest it.
Delay Your Retirement Date
With extra income going to debt repayment, you will have less money to save for your retirement. Beginning to save for retirement as early as possible is one of the best financial decisions you can make. You can benefit from decades of compounded growth and lower your tax bill all at the same time. The longer you wait to invest, the farther off your retirement date may be.
Have a Negative Effect on Your Credit Score
Debt can affect your credit score in multiple ways. Carrying high balances on your credit cards, being close to credit limits, and having a large amount of debt are all major factors that can considerably lower your credit score. With your credit score low, you may have a harder time borrowing when necessary and be forced to pay higher interest rates.
Limit Your Choices
Whether it's to refinance a home or purchase a new car, you will eventually find yourself searching for a loan. If you already have a large amount of debt, you will not only be required to pay higher interest rates due to a lower credit score, but you may even find yourself turned down for financing.
Have an Impact on Your Mental Well-Being
Carrying too much debt can make you feel overwhelmed. If you are only making the minimum required payment, your indebtedness will continue to grow due to accrued interest, and it can begin to feel that it will take forever to pay it off. Keeping up with principal and interest payments, paying your current bills, and trying to save for your retirement will leave you stressed and anxious, and could have a negative impact on both your physical and mental well-being.
ask an advisor
To prevent these financial problems and protect your future retirement plans, it's important to do what you can to avoid getting into debt. To discuss ways you can avoid accumulating debt, or to learn strategies for paying off the debt you currently have, schedule a complimentary consultation with an advisor from Retirement Advisors of America.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.