Debt = Financial Cancer, Part One

 

Debt can be deadly to your finances!  It’s so dangerous to your financial health, that I believe it’s not being too dramatic to say debt is like financial cancer.  However, the banking industry has done such a fantastic job marketing their product – debt – to the American people that we can scarcely imagine not having a car without a car payment, a house without a house payment, or a wallet without a credit card.  Let’s look at the ways that debt can eat away at your income and nest egg and cause ruin to your financial health.

·        Types of Debt – From Bad to Worse.  The least dangerous type of debt is mortgage debt.  Notice that I did not say it was safe debt!  With the recent housing market crash, it’s obvious that buying more house than we can afford with little or no down payment is a recipe for disaster.  Your best bet is to rent while saving up to buy a house with cash.  However, most Americans are not patient enough to do this.  The next best way is to put a sizable down payment on a house and get a 15-year mortgage.  Not only will you get out of debt sooner, but you’ll pay WAY less interest over the life of your loan.

            Many of us have fallen prey to the myth that “you’ll always have a car payment.”  The average car payment in the US is about $475 per month.  That is $5,700 per year!  The sad part of it is that many people owe more on their cars than what they are worth.  The vehicle that I currently drive, I paid for with cash over seven years ago.  I continued to drive my previous car for 2 years after it was paid for and saved the money I would have paid in car payments.  Then I took my cash to the car dealership and negotiated a great deal – with no payments!  I currently have enough money in my savings to purchase a newer car, so again I am holding out for a great deal. 

            The most dangerous type of debt is credit card debt.  Credit card debt is unsecured, meaning there is no tangible asset to back it up unlike a mortgage or car payment.  Why is credit card debt so destructive to your financial health?  It is SO easy to charge up purchases that you really can’t afford.  You can get trapped in the cycle of using your income to pay your credit card, then not having enough cash to pay for groceries and gas so you charge the card right back up again.  Did you know that on average people spend 12-18% more when using credit cards than cash?

·        Debt payments eat away at your income.  Your income is your most valuable wealth-building tool.  But if you have a house payment, a car payment, and a handful of credit cards, those payments are going to take a big bite out of your income.  Most of your paycheck is spoken for every month before it even hits the bank.  This leaves very little money left over for saving, giving, or family fun.  Just imagine what you could do with your money if you didn’t have any payments! 

·        Being in debt causes marital stress, which can lead to divorce.  Debt puts a financial strain on any marriage.  In fact, the leading cause of divorce is money problems.  Staying in denial about the state of your finances only makes it worse.  However, couples that get on the same page about getting out of debt and living within their means can beat the odds of financial ruin and divorce. 

Stay tuned for “Debt = Financial Cancer, Part Two” coming tomorrow! 

Article by Christine Luken Originally Appeared in  Healthy Times Magazine, January 2013

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