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The following is a guest post. Enjoy!
There are many reasons why people end up over their heads with more debt than they can afford to repay. Some graduate from college with the knowledge that the credit card debt they racked up during their carefree college years will be around to haunt them for the rest of their life! Some borrow money for large purchases during times when they can easily afford to repay their debts – only to have a major change in their income a few months later.
Whatever the reason – having too much debt and falling behind on your payments can cause you to pay extra on utilities and car insurance, and can make it difficult to rent an apartment or borrow more money in the future.
How Much is Credit Card Debt Costing You?
One of the most expensive forms of credit people generally have is credit card debt. The higher your interest rate, the more the debt will cost you. For example, if you have a $5,000 credit card balance, your minimum payment will be about $200 a month. If your credit card charges 18% APR, (and you never made another purchase on the card) it would take you over 11 years to pay it off and pay over $2,800 in interest. The $5,000 you charged on your card is actually costing you $7,800 – and this is if you never make a late payment.
That’s the literal cost of excessive, high interest debt – but what else do you pay more for when you have bad debts?
Utility Accounts Cost More When You’re in Debt
If you have a history of making your payments late or have a low credit score, utility companies – particularly the electric company, may require that you pay a deposit before you can turn service on in your name.
Car Insurance Premiums Are Higher When You’re in Debt
Your car insurance premium takes your credit score into consideration, too. For some reason, car insurance companies decided that if you have excessive debt and a low credit score, you’re at risk for more accidents and therefore need to be charged more money for car insurance.
You May Find it Difficult to Rent an Apartment
Many landlords run credit checks before renting apartments. If you have excessive debt that has caused your credit score to drop, you could face problems finding a place to live. If a landlord or rental company does allow you to rent despite excessive debt and a low credit score, they may charge you a higher security deposit or even a higher monthly rent.
Avoid Becoming a Victim of Debt
Having access to credit is necessary for most of us – it is necessary when you want to rent a car, book travel or hotel rooms, or buy anything online or over the phone. Using credit cards and other forms of credit irresponsibly will not only cost you more in interest payments for the debt itself – but causes you to pay more money in other areas of your life, as well. If you establish good personal finance habits, you will save a lot of money, which you would have given to the banks otherwise.
How about you all? Do you know of any additional indirect effects of being in debt and/or having bad credit?
Also, another thing that I’m curious about is to get the readers’ input on whether or not you think that 1) large amounts of consumer (credit card) debt, 2) fiscal responsibility in one’s personal finances, and/or 3) bad credit should be considered in someone’s application for employment?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/myloonyland/430367107/sizes/l/in/photostream/